E*Trade's Analyst Says Revenue, EPS Growth Will Remain Healthy Even In Less Favorable Interest Environment

E*TRADE Financial Corp ETFC could report better organic net new brokerage assets for the first quarter using its new reporting methodology, according to Raymond James.

The company seems poised for relatively healthy revenue and EPS growth even in a less favorable interest rate environment, in the sell-side firm's view. Raymond James projects rising client cash balances, a healthy pipeline of corporate services assets and the holding of the capital required for aggressive share buybacks.

The Analyst

Patrick O'Shaughnessy maintained an Outperform rating on E*Trade and raised the price target from $57 to $60.

The Thesis

The financial services company recorded retail and advisor services net new assets of $4.7 billion with trailing 12-month growth of 5.5 percent in the first quarter under its new reporting methodology, O'Shaughnessy said in a Wednesday note. (See his track record here.) 

Using the previous methodology, this figure falls to $3 billion, missing the forecast, with an 80bps sequential decline in TTM growth to 3.7 percent, the analyst said. 

The new reporting methodology is not wrong, but it makes E*Trade’s core growth seem better and would have made growth look much worse in prior years, O'Shaughnessy said. 

Net interest income for the first quarter came in at $492 million, with a net interest margin of 3.23 percent. Both figures beat expectations. 

E*Trade's 2019 net interest margin guidance of 315-320bps points toward NIM contraction through the rest of the year, the analyst said. The company expects deposit costs to rise as high-yield savings account balances continue to gain traction.

Raymond James raised its 2019 non-GAAP EPS estimate for E*Trade from $4.14 to $4.34 to reflect the first-quarter upside and faster balance sheet growth fueled by the company’s premium savings account. 

Price Action

E*Trade shares were up 2.7 percent at $51.32 at the time of publication Thursday. 

Related Links:

Earnings Scheduled For April 17, 2019

E*Trade Financial Q4 Earnings Preview