Lower PE ratio
E*TRADE Financial Corporation’s (ETFC) price-to-earnings ratio stood at ~16.0x on a next-12-months (or NTM) basis. An average of the company’s peers stood at ~23.2x, representing ETFC’s lower valuations.
Due to the new US tax law, E*TRADE incurred additional tax costs of $58.0 million in 4Q17, which could be the primary reason for its lower valuations.
Recent acquisition, price target
On January 25, 2018, E*TRADE Financial (EFTC) announced that it acquired more than 1 million retail brokerage accounts from Capital One Financial Corporation (COF) for $170.0 million. This acquisition could help E*TRADE recover from its lower valuations. These accounts have customer assets of $18.0 billion.
At the end of 2017, these accounts had customer cash and customer margin balances of $1.9 billion and $0.2 billion, respectively. According to E*TRADE’s management, this acquisition could help E*TRADE enhance its reach to US households.
The company expects to complete this acquisition by 3Q18. Following the completion of this acquisition, new customers would be eligible to access E*TRADE’s services and products. The company plans to utilize corporate cash to execute the acquisition.
Wall Street analysts gave a one-year target on E*TRADE Financial of $62.25, reflecting an ~18.1% increase from the current price of $52.70.