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Analyzing TD Ameritrade’s Premium Valuations

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Mar. 15 2018, Published 11:28 a.m. ET

Higher price-to-earnings ratio

The PE (price-to-earnings) ratio of TD Ameritrade Holding (AMTD) was 17.14x on an NTM (next-12-month) basis, which represents a premium valuation. Its competitors’ average was 12.05x. PNC Financial Services (PNC), Gain Capital Holdings (GCAP), and Morgan Stanley (MS) have PE ratios on an NTM basis of 14.63x, 9.67x, and 11.85x, respectively.

TD Ameritrade is expected to witness a marginal rise in revenues moving forward, which could be the main reason for its higher valuations. In addition, the 24-hour trading service launched by the company could also be a major driver of its valuations, as it has attracted investors’ attention.

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Rise in earnings estimates

Around two months ago, analysts gave an average estimate for AMTD’s fiscal 2Q18 EPS (earnings per share) of $0.58. However, the estimate was later raised to $0.66, and a few days ago, it was changed to $0.67. The current estimate for its fiscal 2Q18 EPS is $0.67. This gradual improvement in EPS estimates could be the main reason for the company’s higher valuations.

TD Ameritrade could see a more favorable momentum with respect to its valuations since it has successfully wrapped up the conversion of its brokerage accounts to Scottrade. Its PE (price-to-earnings) ratio on an LTM (last-12-month) basis was 35.90x. The ratios for its peers PNC Financial Services (PNC), Gain Capital Holdings (GCAP), and Morgan Stanley (MS) were 20.02x, 25.35x, and 15.38x, respectively, on an LTM basis.

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