Owing to the tax reform bill, rising interest rates and less regulation on the financial sector, Zacks Investment Research is pounding the table on TD Ameritrade, calling the discount brokerage's stock a "must buy."
In a research report this week, Zacks pointed to TD Ameritrade Holding Corporation's (AMTD) trading volumes, client focus and cross-selling opportunities as reasons to own the stock. What's more, Zacks said that the impending interest rate hikes out of the Federal Reserve will provide stability to earnings for the Omaha, Nebraska-based discount brokerage, even with a lack of diversity since the company is focused largely in the U.S. That stability should also cushion the blow from rising costs as online brokerage competition remains fierce.
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"With net new client assets worth about $26.5 billion as of Dec. 31, 2017, TD Ameritrade's strengths include a sturdy top line and earnings growth, trading activities as well as steady capital deployment," wrote Zacks. "The company's shares have rallied 50.4% in a year, outperforming [the] 22.3% gain of the industry."
According to Zacks, TD Ameritrade's growth prospects look "encouraging" thanks in part to its acquisition of Scottrade. That deal should give the brokerage scale in its retail business and significantly expand its branch network. On the organic growth front, Zacks said that TD Ameritrade has been doing a good job gathering assets under management, logging double-digit new client asset growth since its fiscal 2008. In 2017, the annualized growth rate of net new client assets was 10%, which is in line with TD Ameritrade's long-term projections. Zacks noted that the trend continued in the fiscal first quarter of 2018.
For its fiscal first quarter, the discount brokerage reported GAAP earnings per share of $0.52 on net income of $297 million. Excluding items, non-GAAP EPS came in at $0.80, up 86% year over year. TD Ameritrade reported net revenue of $1.3 billion, which was up 46% year over year. Analysts had expected the company to weigh in with earnings per share of $0.51 and revenue of $1.2 billion. The discount brokerage said that it benefited during the quarter from the acquisition of Scottrade, as the fiscal first quarter marked the first full three-month period that includes Scottrade results. The company ended the fiscal first quarter with client assets of about $1.2 trillion, which marks a 48% year-over-year jump.
"Over the past three to five years, TD Ameritrade witnessed earnings per share (EPS) growth of 9.33%. Notably, the company recorded an average positive earnings surprise of 17.07% over the trailing four quarters," wrote Zacks. "Earnings momentum is likely to continue in the near term as reflected by the company's projected EPS growth rate (F1/F0) of 65.3% compared with the industry average of 31.2%."