Trading The Online Brokers

In a research note published Wednesday, CLSA raised the ratings of online brokerages, premising the actions on different factors for different firms. The price target changes are as follows:

• Charles Schwab Corp SCHW: $34 from $31.
• TD Ameritrade Holding Corp. AMTD: $37 from $34.
• E*TRADE Financial Corp ETFC: $33 from $29.

Modest Upside In Trading Levels For Charles Schwab

CLSA said it is raising its third-quarter earnings per share estimate for Charles Schwab by a penny to $0.33, with slightly higher-than-expected trading levels, a rebound in 10-year yield and modest increases in some short-term rates offered as reasons. Also banking on higher rates, the firm raised its 2016 estimates by 2 cents to $1.27 and its 2017 estimates by 5 cents to $1.50.

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Not All Hunky Dory

CLSA said it is lowering its forward asset levels and asset-based fees due to slowing net asset growth. Consequently, the firm maintained its earnings per share estimate at $1.75. Citing higher comps and roll-forward of estimates, the firm raised its price target for the shares of the company by $3 to $34.

Ameritrade Trading Down But Rates, Asset Growth Help

Given that trading volume is down, CLSA left its fourth-quarter earnings per share estimate unchanged at $0.39. However, rounding off, according to the firm, trimmed a cent from the full-year estimate. Higher rate expectations and slightly better earnings asset growth led CLSA to raise its 2017 and 2018 earnings per share estimate by a nickel each to $1.75 and $2.05, respectively.

The firm also raised its price target for the shares of the company to $37 from $34, given the higher earnings estimates and higher comps.

E*TRADE The Pick Of The Lot

CLSA is of the view that E*TRADE is more attractive than the other e-brokers, as it feels the company can narrow its valuation gap with peers, justifying a higher target price. The firm raised its price target to $33 from $29, reflecting its expectations that achieving peer growth rate can give the company's shares a peer multiple and a merger premium.

The firm also said it now foresees the possibility of a takeover over the next two years. CLSA also noted that the management team has given themselves a mandate to improve growth in 18–24 months.

E*TRADE Financial shares were up 0.70 percent at $28.69, Ameritrade had risen 0.66 percent to $33.67 and Charles Schwab was up 0.77 percent to $31.37.

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