TD Ameritrade Stock a Buy on Trading Volumes, Inorganic Growth: Zacks

Owing to strong trading volumes, a focus on the client and inorganic growth efforts, TD Ameritrade should have positive results in the new year, prompting Zacks Investment Research to reiterate its buy rating on the stock.

In a research report issued this week, Zacks said that the prospects for TD Ameritrade Holding Corporation (AMTD) "look encouraging" thanks in part to inorganic activities like its recent acquisition of Scottrade Financial Services. That purchase in October 2016, which valued Scottrade at $4 billion, is expected to bolster the firm's retail business, increase trading operations and expand its branch network by a large amount. What's more, Zacks said the deal will generate double-digit EPS accretion.

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On the trading volume front, Zacks said that the Omaha, Nebraska-based discount brokerage has improved on a consistent basis during the past few years. On a year-over-year basis, the daily average trade per client has increased 10% this year. It doesn't hurt that the stock markets have been high flying all year, increasing interest on the part of all sorts of investors. Earlier this month, TD Ameritrade announced that its Investor Movement Index (IMX) set a new all-time high of 8.53 in November 2017, up 15% and blowing past the previous reading of 7.40 set in October. The IMX is a behavioral-based index that measures investors' actions in the market from one month to the next. The IMX had its largest single-month gain in November, increasing more than 15%, with customers net buyers for the tenth month in a row.  According to Zacks, TD Ameritrade's trading volumes should continue to benefit from a rising interest rate environment in 2018 and thanks to its trading platforms, which Zacks called innovative.

Some analysts have said that TD Ameritrade's move to embrace bitcoin futures, offering the trading product to its clients, could boost the number of customers it has and thus increase its trading volumes in the new year. Trefis.com, a platform created by a team of MIT engineers and Wall Street analysts that helps investors understand how companies' products affect share prices, predicted as much in a recent report. "Introducing bitcoin futures on well-established brokerages exposes the currency to a large pool of traders and investors, which could drive further demand for the currency and volumes for the brokerages," wrote Trefis.com.

Zacks also pointed to capital deployment activities in 2018 as another positive for TD Ameritrade. According to Zacks, the firm's "strong capital position enables it to undertake steady capital deployment activities." Zacks noted that, in October of this year, TD Ameritrade raised its quarterly dividend by 17%. "With favorable debt/equity ratio compared to the industry's average, these measures look sustainable," wrote Zacks. On the negative side of things, the investment research firm did point to rising operating expenses at the company as something to be concerned about. According to Zacks, the expense base at TD Ameritrade is likely to be under pressure due to ongoing investments in technology and advice.