Market Overview

Attractive Entry Point, Tax Cuts Drive Morgan Stanley's E*Trade Upgrade

Share:
Attractive Entry Point, Tax Cuts Drive Morgan Stanley's E*Trade Upgrade

After gaining more than 40 percent in 2017, E*TRADE Financial Corp (NASDAQ: ETFC) has further upside ahead in 2018, according to Morgan Stanley.

The Analyst

Morgan Stanley's Michael Cyprys upgraded E*Trade from Equal-weight to Overweight with a price target boosted from $44 to $63.

The Thesis

E*Trade's stock return throughout 2017 left many investors happy, but shares are surprisingly trading at a greater discount to its peers, which is "unwarranted," Cyprys said in the upgrade note. (See the analyst's track record here.) 

E*Trade's stock is trading at a 13.5 times multiple on the analyst's 2019 earnings per share estimate, which is a 22 percent discount to its biggest peers versus a historical average of 12 percent. 

Cyprys named four reasons to justify owning the discount broker's stock:

  • The company's tax rate of 38 to 39 percent is among the highest in the space and can conservatively drop to 27 percent due to tax changes.
  • E*trade is one of the more interest rate-sensitive stocks under the analyst's coverage, and every 25 basis point boost in rates translates to $60 million in incremental net interest income. 
  • Retail trading activity is coming in 12 percent better than expected.
  • Management's initiatives to improve E*Trade's business make it an attractive acquisition target.

Morgan Stanley's $63 price target is based on a 17x multiple on the analyst's 2019 EPS estimate, which implies only a one-turn discount to the historical multiple of 18x.

Price Action

Shares of E*Trade were up 1.45 percent at $50.54 at the time of publication. 

Related Links:

Online Brokerage Shares Dip On Old News

E*TRADE To BlackRock: Here Are Barclays' New Favorite Financials

Photo by Thomas Hunt/Wikimedia. 

Latest Ratings for ETFC

DateFirmActionFromTo
Jan 2020MaintainsMarket Outperform
Jan 2020MaintainsUnderweight
Jan 2020MaintainsEqual-Weight

View More Analyst Ratings for ETFC
View the Latest Analyst Ratings

Posted-In: Discount Brokers Michael Cyprys Morgan Stanley Online BrokersAnalyst Color Upgrades Price Target Analyst Ratings Best of Benzinga

 

Related Articles (ETFC)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
KHCUBSMaintains31.0
RPAYCantor FitzgeraldMaintains18.0
CMSCredit SuisseDowngrades
PBCTStephens & Co.Maintains15.5
TTECCowen & Co.Initiates Coverage On50.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com