A month has gone by since the last earnings report for TD Ameritrade (AMTD). Shares have lost about 7.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is TD Ameritrade due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
TD Ameritrade's Q2 Earnings Miss, Expenses Up
TD Ameritrade reported a negative earnings surprise of 2.3% in second-quarter fiscal 2020 (ending Mar 31). Adjusted earnings of 86 cents per share lagged the Zacks Consensus Estimate of 88 cents. The figure also slipped 7% from the prior-year quarter’s reported tally.
The company’s results displayed escalating expenses during the fiscal second quarter. A fall in NIM was also recorded. However, the company witnessed an increase in average client trades per day, indicating investors’ willingness to invest, leading to higher trading activity.
Including certain non-recurring items, net income for the quarter came in at $446 million or 82 cents per share compared with the $499 million or 89 cents reported in the prior-year quarter.
Revenues Climb, Expenses Flare Up
Net revenues for the reported quarter came in at $1.48 billion, up 2.1% year over year. This increase chiefly resulted from higher other revenues, partly offset by lower transaction-based and asset-based revenues. The reported figure surpassed the Zacks Consensus Estimate of $1.42 billion as well.
Total asset-based revenues for the March-end quarter amounted to $920 million, down around 1% year over year, hurt by lower net interest revenues. This was partially muted by higher bank deposit account fees and investment product fees.
Also, commissions and transaction fees edged down 1.2% from the prior-year quarter to $481 million. However, other revenues more than doubled to $79 million from the prior-year quarter.
The quarter's NIM came in at 1.88%, contracting 29 basis points year over year.
Total operating expenses flared up 13.8% year over year to $849 million. This upswing mainly resulted from rise in almost all components of expenses, partly mitigated by lower professional services.
Steady Trading Activity
Average client trades per day for the fiscal second quarter more than doubled on a year-over-year basis to 2.1 million.
As of Mar 31, 2020, net new client assets totaled $45.4 billion, up 13% year over year on annualized basis. Total client assets came in at $1.23 trillion, down 5.4% year over year.
Average spread-based balance was $163.1 billion, up 11.9% year over year, and average fee-based investment balance was down 35.4% to $176.8 billion.
As of Mar 31, 2020, TD Ameritrade’s cash and cash equivalents were $3.7 billion, up from the $2.7 billion reported as of Mar 31, 2019. Shareholders’ equity was $9.2 billion, up from the reported figure of $8.7 billion as of Sep 30, 2019.
For fiscal 2020, revenues are expected in the range of $4.9-$5.3 billion and GAAP operating expenses are projected at $2.8-$3 billion, including advertising expenses of $250-$300 million and intangible amortization of $115-$120 million. The NNA growth rate is expected to be 7-10%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 8.01% due to these changes.
Currently, TD Ameritrade has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, TD Ameritrade has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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