It has been about a month since the last earnings report for TD Ameritrade (AMTD). Shares have lost about 2.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is TD Ameritrade 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 Q1 Earnings Miss Estimates on Lower Revenues
TD Ameritrade's first-quarter fiscal 2020 (ending Dec 31) adjusted earnings of 74 cents per share lagged the Zacks Consensus Estimate of 77 cents. The figure also plunged 33.3% from the prior-year quarter’s reported tally.
The company’s results displayed lower revenues and escalating expenses in the fiscal first quarter. Fall in net interest margin (NIM) was also recorded. However, the company witnessed an increase in average client trades per day, indicating investors’ willingness to invest, leading to higher trading activity.
Including certain non-recurring items, net income for the quarter came in at $379 million or 70 cents per share compared with the $604 million or $1.07 reported in the prior-year quarter.
Revenues Down, Expenses Flare Up
Net revenues for the reported quarter came in at $1.29 billion, down 15.1% year over year. This decrease chiefly resulted from lower transaction-based and other revenues, partly offset by higher asset-based revenues. The reported figure comes in line with the Zacks Consensus Estimate.
Total asset-based revenues for the December-end quarter amounted to $958 million, up 1.2% year over year, driven by higher bank deposit account fees and investment product fees. This was partially muted by lower net interest revenues.
Yet, commissions and transaction fees slumped 43.2% from the prior-year quarter to $305 million. The quarter's NIM came in at 2.10%, contracting 8 basis points year over year.
Total operating expenses flared up 6.9% year over year to $770 million. This upswing mainly resulted from rise in almost all components of expenses, partly mitigated by lower occupancy and equipment costs, along with communication and other expenses.
Steady Trading Activity
Average client trades per day for the fiscal first quarter increased 10.8% year over year to 1,028,239.
As of Dec 31, 2019, net new client assets totaled $28.7 billion, down 9.7% year over year on annualized basis. Total client assets came in at $1.43 trillion, up 23.3% year over year.
Average spread-based balance was $151.8 billion, up 5.2% year over year, and average fee-based investment balance was down 31.9%, to $179.5 billion.
Balance Sheet Position
As of Dec 31, 2019, TD Ameritrade’s cash and cash equivalents were $2.55 billion, down from the $2.85 billion reported as of Sep 30, 2019. Shareholders’ equity was $8.7 billion, almost in line with the reported figure as of Sep 30, 2019.
Capital Deployment
During the fiscal first quarter, TD Ameritrade repurchased 3.7 million shares for a total cost of $143 million. Notably, per terms of the acquisition agreement with The Charles Schwab Corporation (NYSE:SCHW), the company terminated its stock-buyback program.
Fiscal 2020 Outlook
The company expects to deliver revenues in the range of $4.9-$5.3 billion.
GAAP operating expenses are expected to be in the range of $2.8-$3 billion.
Advertising expense is expected to be in $250-$300 million band and intangible amortization is expected to be $115-$120 million.
Tax rate is expected to be between 24% and 26%.
Shareholder return of around 90% of non-GAAP net income is anticipated.
Net new assets are expected to be within the 7-10% range. Share repurchases are expected to be around $15 million.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
VGM Scores
Currently, TD Ameritrade has a poor Growth Score of F, however its Momentum Score is doing a lot 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, TD Ameritrade has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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