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TD Ameritrade 2017 Outlook Based on Asset Gains, Retirement

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Stable outlook

TD Ameritrade’s (AMTD) stock has risen 10% over the past year and 25% over the past three months on rising assets, retirement assets, investment product expansion, and inorganic expansion. The company’s performance fell marginally in fiscal 4Q16 (ending September 30) with growth in client assets, partially offset by lower trades and trading income.

Overall volatility in markets has remained subdued, however, after the US Presidential elections, though any surprise from the Fed surrounding the expected rate hike of 25 basis points in December 2016 could lead to increased volatility—something from which TD Ameritrade and other brokerage houses would benefit.

TD Ameritrade rewards its shareholders through dividends and share repurchases. The company declared a dividend of $0.18 per share in November 2016, which represents a rise of 6% over one year previously. The company’s competitors in the industry have the following dividend yields:

  • Charles Schwab (SCHW): 0.7%
  • Interactive Brokers Group (IBKR): 1.1%
  • E*TRADE Financial (ETFC): 0%

Together, these companies account for 1.5% of the Financial Select Sector SPDR ETF (XLF).

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Valuations rise

TD Ameritrade is now trading at 21.5x on a one-year forward earnings basis, while its peers are trading at 22.4x on average. The company’s discount gap has narrowed from its historic valuations, mainly due to relative outperformance in gathering new assets and to its focus on retirement solutions and long-term earnings growth creation.

But overall, the company’s valuations are in line with that of other financial services companies. On a trailing-12-month basis, TD Ameritrade is valued at a price-to-earnings ratio of 25x, which is also in line with the industry average.

For fiscal 2017, TD Ameritrade expects its earnings per share to be in the range of $1.50–$1.80 with 0%–10% market growth and net new assets of $55 billion–$85 billion. The company expects expense growth of 3% and pretax margins in the range of 38%–42%.

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