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A Look at E*TRADE’s Valuations

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E*TRADE Financial Corporation

E*TRADE Financial Corporation’s (ETFC) EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] ratio is ~38.1x. This reflects its premium valuations in relation to its competitors’ average of ~25.7x. The company’s competitors have the following EV-to-EBITDA ratios on an NTM (next-12-months) basis:

  • Charles Schwab Corporation (SCHW): ~48.2x
  • TD Ameritrade Holding Corporation (AMTD): ~12.4x
  • Interactive Brokers Group (IBKR): ~16.4x

Sequentially, these brokerage companies expect to witness lower trading revenues due to lower volatility in the second quarter. However, the industry remains competitive as brokerages develop digital initiatives to streamline the trading process.

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Digitization to drive the industry

TD Ameritrade is expected to witness a boost in its customer participation levels since it introduced Personalized Portfolios in May. Charles Schwab’s net interest revenues have been on an uptrend in the last few quarters, and this trend is expected to continue due to anticipated rate hikes. In the first quarter of 2017, Charles Schwab’s net interest revenue was $1.0 billion. In the first quarter, it was ~$1.3 billion. The brokerage company’s performance depends on client sentiment and on the initiatives adopted to retain their clients.

These brokerages could opt for pricing measures such as reduced commission rates in order to outperform their competitors. This measure could negatively impact these brokerages’ financials, which could reduce their stock prices.

E*TRADE Financial’s EV-to-EBITDA multiple is ~40.8x on an LTM (last-12-months) basis. Its peers have the following EV-to-EBITDA multiples on an LTM basis:

  • Charles Schwab Corporation: ~63.7x
  • TD Ameritrade Holding Corporation: ~21.1x
  • Interactive Brokers Group: ~29.7x
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