E*TRADE Benefiting from Strategic Bank and Trade Model

Rising trades, capital deployment

E*TRADE Financial (ETFC) is expected to report earnings per share (or EPS) of $0.39 in the June quarter and $1.65 for 2016, reflecting strong growth. In 1Q16, E*TRADE beat the Wall Street analysts’ EPS estimates of $0.33, reporting adjusted EPS of $0.43.

E*TRADE reported its 1Q16 adjusted net income of $122 million compared to $89 million in 1Q15. The company reported revenues of $472 million compared to $439 million in 1Q15.

E*TRADE’s total customer assets stood at $285 billion in 1Q16 compared to $288 billion in the previous quarter. The company’s daily average revenue trades (or DARTS) for the first quarter stood at 165,000.

In its April 21, 2016, press release, E*TRADE’s CEO, Paul Idzik, stated, “We started the year with respectable business growth and exceptional levels of capital deployment. While economic uncertainty persisted throughout the quarter, our customers remained active while generating healthy levels of new accounts and assets.

“Further, we moved $400 million of capital from our subsidiaries to the parent, began operating our bank at a lower capital threshold, and moved our balance sheet closer to its target size. We also took advantage of market conditions to accelerate our share repurchase program and aggressively return capital to our owners, completing nearly half of our $800 million authorization in just a few months.”

Financial services

E*TRADE (EFTC) provides brokerage, related products, and services primarily to individual retail investors. The services are provided under the brand E*TRADE Financial. The company also provides investor-focused banking products, primarily sweep deposits, to retail investors. Its main strategy is to attract and retain customers by positioning a hybrid model of technology and digital-intensive channels.

The company provides services to its various customers through its desktop software E*TRADE Pro, its website, and its mobile applications. It also serves customers through financial consultants and customer service representatives, over the phone, and in person through 30 E*TRADE branches.

Here’s how some of E*TRADE’s peers in the brokerage industry fared with their respective quarterly earnings:

• Interactive Brokers Group (IBKR) beat estimates

• TD Ameritrade (AMTD) met estimates

• Charles Schwab (SCHW) met estimates

Together, these companies form 4.5% of the First Trust Dow Jones Internet ETF (FDN).

In this series, we will discuss E*TRADE’s average trades, commissions, capital deployment, new clients, balance sheet strength, dividends, and valuations.