Jefferies' Top Brokerage Pick

Reflecting a pickup in trading, higher market levels and interest rates, Jefferies has lifted 2016's fourth-quarter estimates on three financial brokerages.

Due to recent M&A activity in the financial services sector, Jefferies believes the focus will return to organic growth and achieving operational efficiencies. A favorable market backdrop bodes well for the financial brokerages, and Jefferies is predicting two interest rate increases in 2017 (June and December) and a similar pattern to occur in 2018 as well.

TD Ameritrade

TD Ameritrade Holding Corp. AMTD's fiscal 2017 first-quarter estimates were raised $0.02 to $0.40 by Jefferies as well as a FY 2017 increase from $1.63 to $1.69. “The change mainly reflects higher trading in the qtr with the flow through of higher rates throughout the year,” Jefferies said. Jefferies is also expecting the TD Ameritrade/Scottrade merger to close this year.

Jefferies maintains a Hold rating TD Ameritrade with a revised price target of $47.

E*Trade

E*TRADE Financial Corp ETFC's FY 2017 EPS estimates were raised $0.10 to $1.95 by Jefferies. “The annual estimate reflects slightly higher balance sheet growth in 2017 as well as the aforementioned change in interest rate assumptions,” according to the report. Jefferies anticipates that the company’s acquisition of OptionsHouse will be the main contributing factor to E*Trade’s growth targets of 2–3 percent going into 2018.

Jefferies maintains a Hold rating on the company with a revised price target of $40.

Charles Schwab

Of the three companies analyzed, Charles Schwab Corp SCHW remains Jefferies favorite for its asset gathering potential and leverage to higher rates.

Jefferies analysts raised 2016 fourth-quarter estimates $0.01 to $0.36 and increased FY 2017 estimates $0.05 to $1.70, adding, “The increase is largely interest rate related with continued progress expected against money market waivers, as well as modest tightening around expense assumptions.”

Jefferies has a Buy rating on Charles Schwab with a revised $49 price target.