A month has gone by since the last earnings report for TD Ameritrade (AMTD). Shares have added about 2.9% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is TD Ameritrade due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
TD Ameritrade Q1 Earnings Beat, Trading Metrics Improve
TD Ameritrade recorded a positive earnings surprise of 11% in first-quarter fiscal 2019 (ending Dec 31). The company reported adjusted earnings of $1.11 per share, beating the Zacks Consensus Estimate of $1.00. Moreover, the figure jumped 39% from the prior-year quarter.
Results displayed stellar revenues and controlled expenses. Rise in net interest margin (NIM) was also recorded. Notably, the company witnessed an increase in average client trades per day, indicating improvement in trading activity.
Including certain non-recurring items, net income for the quarter came in at $604 million or $1.07 per share compared with $297 million or 52 cents per share in the prior-year quarter.
Rise in Revenues and Lower Expenses Recorded
Net revenues for the reported quarter came in at $1.5 billion, surpassing the Zacks Consensus Estimate of $1.47 billion. Also, the reported figure climbed 15.4% year over year. The rise chiefly stemmed from higher transaction-based, as well as asset-based revenues.
Total asset-based revenues for the Dec-end quarter amounted to $947 million, up 19.9% year over year, driven by higher bank deposit account fees, as well as investment product fees and net interest revenues.
Commissions and transaction fees climbed 22% from the prior-year quarter to $537 million. Further, the quarter's NIM came in at 2.18%, expanding 47 basis points year over year.
Total operating expenses declined 21.8% year over year to $720 million. The downside mainly resulted from fall in a number of expenses, including employee compensation and benefits, advertising, occupancy and equipment costs, and other expenses.
Trading Activity Improves
Average client trades per day for the fiscal first quarter jumped 27.7% year over year to 927,849. As of Dec 31, 2018, net new client assets totaled $32 billion, up 20.8% year over year. Total client assets came in at $1.16 trillion, down 1.7% year over year.
Average spread-based balance was $144.3 billion, down 4.2% year over year, and average fee-based investment balance was up 14.6%, to $263.6 billion.
Balance Sheet Position
As of Dec 31, 2018, TD Ameritrade’s cash and cash equivalents were $5.1 billion compared with $2.7 billion reported as of Sep 30, 2018. Shareholders’ equity was $8.4 billion compared with $8 billion as of Sep 30, 2018.
Share Repurchases
During the fiscal first quarter, TD Ameritrade repurchased 2.9 million shares for a total cost of $145 million.
Fiscal 2019 Outlook
The company expects to deliver revenues of greater than or equal to $5.75 billion, up around 6% year over year. However, given high levels of investor engagement and rate expectations, revenues are expected to be considerably higher.
For expenses, positive operating leverage is expected to be at least 200 basis points, even with modest revenue growth. Notably, operating expenses are expected to be in the range of $2.9-$3 billion. Advertising expenses are expected to be within the $300-$320 million range.
Tax rate is expected to be around 25%.
Dividend payments of 30-40% of non-GAAP net income are anticipated, though the percentage might fall slightly on revenue tailwinds. Share repurchases are expected to be up to 40% of non-GAAP net income in 2019.
Net new assets are expected to be within the 7-10% range. Commission rate excluding order routing are expected to be down 2-3% year over year.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
VGM Scores
At this time, TD Ameritrade has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
TD Ameritrade has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
TD Ameritrade Holding Corporation (AMTD): Free Stock Analysis Report
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