Weak Net Interest Income To Hurt E*TRADE (ETFC) Q3 Earnings

E*TRADE Financial Corporation (NASDAQ:ETFC) is scheduled to report third-quarter 2019 results on Oct 17. The company’s performance will likely reflect year-over-year growth in revenues and earnings.

In the last reported quarter, E*TRADE pulled off a positive earnings surprise of 1.8%, supported by improved net interest income, higher DARTs and a benefit to provision for loan losses. Further, the company registered a rise in customer accounts in the quarter. However, decreased fee income and escalating expenses were major drags.

In addition, E*TRADE has an impressive earnings surprise history. It delivered positive earnings surprises in each of the trailing four quarters, the average beat being 9.8%.

Estimates for the to-be-reported quarter have decreased slightly, over the last seven days. Notably, the Zacks Consensus Estimate for earnings reflects 0.17% growth year on year, while for sales, estimates suggest a 2.3% year-over-year improvement.

Factors at Play for Q3 Results

Trading Revenues Dismal: Despite strong equity markets and elevated volumes, reduced client activities were witnessed in the to-be-reported quarter, partly on the political uncertainty and continued ambiguity over trade conflict, along with several other geopolitical matters. Therefore, expected fall in DARTs in the quarter will have unfavorably impacted commission revenues as well. The consensus estimate for DARTs is 267,024, down slightly on a sequential basis.

However, E*TRADE opened 9,770 and 27,358 net new accounts in July and August, respectively, suggesting investors’ interest in entering the market. Therefore, growth in accounts might have provided some respite to trading revenues.

Overall, the Zacks Consensus Estimate for non-interest income of $290 billion for the third quarter indicates a 48.7% sequential jump.

Interest Income Weak: As net interest income (NII) constitutes a significant part of E*TRADE’s revenues, a soft lending scenario during the quarter is predicted to have marred NII growth to some extent. Further, the Federal Reserve’s accommodative monetary-policy stance with decline in interest rates (two rate cuts — in July and September), flattening of the yield curve and steadily rising deposit betas are likely to have hurt the bank’s net interest margin. Yet, rise in average interest earning assets are anticipated to have provided support to its interest income.

Notably, the Zacks Consensus Estimate for average interest earning assets of $57 billion for the September-end quarter indicates a 5% sequential decrease.

Elevated Expenses: The company plans to make several investments, along with spending money, in marketing. This might have escalated expenses during the quarter under review.

Earnings Whispers

According to our quantitative model, E*TRADE doesn’t have the right combination of the two key ingredients — positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for E*TRADE is 0.00%.

Zacks Rank: It currently carries a Zacks Rank #3, which increases the predictive power of ESP. But we need to have a positive earnings ESP to be sure of an earnings beat.

Stocks That Warrant a Look

Here are some stocks you may want to consider, as according to our model these have the right combination of elements to post an earnings beat this quarter.

Cullen/Frost Bankers, Inc. (NYSE:CFR) is slated to release results on Oct 24. The company has an Earnings ESP of +0.59% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Huntington Bancshares Incorporated (NASDAQ:HBAN) has an Earnings ESP of +3.03% and at present, holds a Zacks Rank of 3. It is slated to report quarterly figures on Oct 24.

M&T Bank Corporation (NYSE:MTB) is scheduled to release results on Oct 17. The company, which currently carries a Zacks Rank of 3, has an Earnings ESP of +0.55%.

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