Why Is TD Ameritrade (AMTD) Up 2.4% Since The Last Earnings Report?

It has been about a month since the last earnings report for TD Ameritrade Holding Corporation (NASDAQ:AMTD) . Shares have lost about 2.4% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? 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 Q4 Earnings Beat Estimates

TD Ameritrade delivered a positive surprise of 6.5% in fourth-quarter fiscal 2017 (ending Sep 30). The company reported earnings of 49 cents per share, beating the Zacks Consensus Estimate of 46 cents. Further, results were up 29% from the prior-year quarter.

Also, fiscal 2017 earnings came in at $1.84 per share, up 10% higher year over year.

The results reflect growth in revenues. NIM expansion was another positive. Notably, the company recorded a rise in average client trades per day, indicating improvement in trading activity. However, the positives were partially offset by elevated expenses.

The company’s net income for the quarter came in at $211 million, down 8.7% year over year. Its fiscal 2017 net income came in at $872 million, comparing favorably with the year-ago figure of $842 million.

Increased Revenues Partially Offset by Higher Expenses

Net revenues for the quarter came in at $983 million, surpassing the Zacks Consensus Estimate of $965 million. Moreover, net revenues increased 18.6% year over year. The rise was chiefly due to higher asset-based revenues, partially offset by lower transaction-based revenues.

Also, its fiscal 2017 net revenues came in at $3,676 million, of which 60% was mainly asset-based revenues. The reported figure was 10.5% higher year over year.

Total asset-based revenues for the quarter amounted to $632 million. The figure increased 31.9% year over year, driven by higher insured deposit account fees, as well as investment product fees and net interest revenues.

Commissions and transaction fees edged down1.8% from the prior-year quarter to $330 million. However, the quarter's NIM was 1.66%, up 31 basis points (bps) year over year.

Total operating expenses flared up 13.9% year over year to $622 million. The rise was mainly due to an increase in a number of expense components, including employee compensation and benefits, professional services and occupancy and equipment costs.

Trading Activity Improves

Average client trades per day for the reported quarter increased 19% year over year to 527,741.

As of Sep 30, 2017, net new client assets totaled $20 billion, up 31.8% year over year. Total client assets came in at $1,118.5 billion, up 44.6%.

Average spread-based balance was $121.7 billion, jumping 9.7% year over year. Average fee-based investment balance was up 18.2% to $199.8 billion.

Balance Sheet Position

As of Sep 30, 2017, TD Ameritrade’s cash and cash equivalents were $1.5 billion compared with $1.9 billion as of Sep 30, 2016. Shareholders’ equity was $7.2 billion compared with $5.1 billion as of Sep 30, 2016.

Fiscal 2018 Outlook

The company also released its outlook for fiscal 2018, which reflects expected GAAP earnings of $1.50 to $2.00 per share while Non-GAAP earnings of $2.10-$2.50 per share, up 14-36% year over year.

Net new client assets are expected to be in $80-$100 billion range.

Management expects the next 25-bps increase in interest rates will benefit an incremental 7-12 cents of earnings per share. Revenue is expected in the range of $4.6-$5.2 billion.

Net interest income is expected in the range of $990-$1,185 million, while transaction-based revenues in the range of $1.55-$1.76 billion.

Total operating expenses are expected in $3.2-$3.3 billion. Management expects approximately $70 million of amortization expense to incur in fiscal 2018 decreasing to a run rate of $53 million annually by fiscal year 2020.

From Scottrade acquisition, synergies of $175-$225 million are anticipated which would lead to 4-8% core expense growth.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter.

VGM Scores

At this time, the stock has a poor Growth Score of F, however its Momentum is doing a bit better with a C. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F'. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable soley for momentum based on our styles scores.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #1 (Strong Buy). We are expecting an above average return from the stock in the next few months.