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What Could Help E*TRADE Financial Revive Discounted Valuations


Mar. 30 2018, Updated 8:00 a.m. ET

Price-to-earnings ratio

E*TRADE Financial Corporation’s (ETFC) price-to-earnings ratio on an NTM (next-12-month) basis stood at 16.21x, implying that its discounted valuations as an average of its peers’ stood at 23.17x. The company’s competitors (XLF) Interactive Brokers Group (IBKR), TD Ameritrade Holding Corporation (AMTD), and Charles Schwab Corporation (SCHW) have price-to-earnings ratios on an NTM basis of 31.13x, 17.16x, and 21.22x, respectively.

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E*TRADE could revive its valuations because of the expected increase in net interest revenues after the March 2018 FOMC meeting. The Fed is expected to increase interest rates twice in 2018 for a total of three hikes. Moreover, in 1Q18, the company’s trading revenues might witness positive momentum on the back of a 24-hour trading service for its customers.

Favorable momentum in EPS estimates

For the past few months, Wall Street analysts have been raising their earnings per share or EPS estimates for E*TRADE Financial in 1Q18. Around two months ago, analysts had an EPS estimate of $0.7 for 1Q18, which rose to $0.74. This estimate rose to $0.75. These improvements might help the company recover its discounted valuations.

E*TRADE’s price-to-earnings ratio on an LTM (last-12-month) basis stood at 23.29x. Peers (XLF) like Interactive Brokers Group, TD Ameritrade Holding Corporation, and Charles Schwab Corporation recorded 19.15x, 36.07x, and 32.45x, respectively.


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