E*Trade Financial Corp. (NASDAQ: ETFC) has had its share of ups and downs since the recession. Now its shares have recovered, and the company is a beneficiary of rising interest rates and expanded trading activity in the markets.
Credit Suisse has been cautious on some financial trading platform companies, but the firm’s Craig Siegenthaler and team issued a new Outperform rating with a $56 price target on Friday, December 1, 2017. That is more than 20% higher than the $46.31 prior closing price. One of the drivers is that the firm believes E*Trade has an implied put option supporting its stock in case there are any unexpected disappointments in 2018.
Charles Schwab Corp. (NYSE: SCHW) was also given a new Outperform rating, but TD Ameritrade Holding Corp. (NASDAQ: AMTD) was assigned an Underperform rating with a $45 price target, which compares with a $51.17 closing price.
In terms of E*Trade, Credit Suisse is forecasting significant upside potential to 2019 sell-side EPS from:
- An improved effort to monetize its client base, including deposit bulk transfers and cross-sell (options, corporate services, new RIA custody platform)
- Higher interest rates (the stock is highly asset sensitive)
- Share buybacks
Credit Suisse believes E*Trade’s valuation is still somewhat affected by problems that occurred 10 years ago, which are now fixed, while improving fundamentals should drive further valuation expansion. The firm also believes that if 2018 results miss company guidance, the board will then look to sell E*Trade to a larger online broker, bank or consumer finance company at a premium to the current share price. So bad news could equal good news for the stock in 2018, and this limits the downside risk.
As for Schwab, Credit Suisse had this to say:
In 2018-19, we believe Schwab’s client-centric strategy (Through Clients’ Eyes) will generate significant value for shareholders through (1) large bulk transfers and (2) asset sensitivity from Fed rate hikes. We think the 2017 pricing cuts to online equity commissions are now completed with another zone of indifference established between both Fidelity and TD Ameritrade, while Schwab could use pricing to disrupt a potential merger between Ameritrade and E*Trade. We estimate the secular growth backdrop (commission to fee-based, wealth generation transfer, digital-technology solutions) will help support high organic growth over the next five years, which SCHW could monetize into 15-20% EPS growth.
Shares of E*Trade were last seen at $48.14, with a consensus analyst price target of $48.94 and a 52-week trading range of $32.25 to $48.72.
Schwab shares were recently trading at $48.77. The stock has a 52-week range of $37.16 to $49.54 and a consensus price target of $49.59.
Ameritrade traded at $50.58 a share. The consensus price target is $53.56 and the 52-week range is $36.12 to $51.80.