TD Ameritrade (AMTD) Q1 Earnings Beat, Trading Metrics Improve

TD Ameritrade Holding Corporation (NASDAQ:AMTD) recorded a positive earnings surprise of 11% in first-quarter fiscal 2019 (ending Dec 31). The company reported earnings of $1.11 per share, significantly beating the Zacks Consensus Estimate of $1.00. Moreover, the figure jumped 39% from the prior-year quarter.

The company’s results displayed stellar revenues and controlled expenses in the fiscal first quarter. 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 reported 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.

Capital Deployment

During the fiscal first quarter, TD Ameritrade repurchased 2.9 million shares for a total cost of $145 million.

Our Viewpoint

The company delivered an impressive performance on a significant improvement in trading activities. Furthermore, eased margin pressure in the Oct-Dec quarter acted as a tailwind. The company recorded a rise in average client trades per day. Additionally, the Scottrade acquisition and strong investor engagement supported earnings growth.

Though we remain cautious of elevated costs, which are likely to weigh on the company’s financials, TD Ameritrade’s steady capital-deployment activities and revenue growth are encouraging.

TD Ameritrade Holding Corporation Price, Consensus and EPS Surprise

TD Ameritrade Holding Corporation Price, Consensus and EPS Surprise | TD Ameritrade Holding Corporation Quote

Currently, TD Ameritrade carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Investment Banks

Charles Schwab’s (NYSE:SCHW) fourth-quarter 2018 earnings of 65 cents per share beat the Zacks Consensus Estimate of 64 cents. Also, earnings surged 59% from the prior-year quarter. Revenue growth (driven by a rise in interest income and trading revenues) and absence of fee waivers aided the results. However, higher expenses remained a concern. Further, the quarter recorded a fall in total client assets.

Weak trading and underwriting performance affected Morgan Stanley’s (NYSE:MS) fourth-quarter 2018 adjusted earnings of 73 cents per share, which lagged the Zacks Consensus Estimate of 90 cents. The figure also reflected 13% decline from the prior-year quarter. Dismal underwriting (both equity and fixed income) revenues (down 25%) and fixed income trading revenues (down 30%) hurt Morgan Stanley’s quarterly results. Additionally, net interest income recorded a fall.

Among others, E*TRADE Financial (NASDAQ:ETFC) is expected to release results on Jan 24.

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