Takeaway & Earnings Summary:
E*TRADE’s stock has gained around 5% of its value since the beginning of 2019 with the company’s share price increasing from over $44 in January to around $46 now. Although the company’s stock price has fluctuated in 2019 driven by a mixed bag of quarterly performance, we believe that the company’s stock is still overvalued and estimate E*TRADE’s valuation to be $43 per share - roughly 5% lower than the current market price.
Q3 2019 Earnings Summary:
E*TRADE’s net revenues grew roughly 7% y-o-y to $767 million in Q3, largely driven by a 2.4% increase in net interest income followed by a 23% jump in total non-interest income.However, the company's adjusted net income contracted by 3%, falling from $261 million in Q3 2018 to $254 million in Q3 2019.Net Interest income is the largest contributor to E-Trade’s top line, which is expected to face a drag from the low-interest-rate environment.The company is nascent in the asset custody business with just $20 billion of custodial assets, as compared to $250 billion and $880 billion of Ameritrade and Schwab, respectively.We expect E-Trade to report revenue declines and margin erosion in 2019.For the fourth quarter of FY 2019, the consensus estimate for earnings per share is in the range of $0.76 to $0.97 while net revenues are expected to be between $642 - $682 million.