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After three long years of deficits, subprime lending fears, CEO shuffling, and death pool wagering, E*TRADE (Nasdaq: ETFC  ) has arrived. The discount broker posted its first quarterly profit in three years last night.

The discount broker managed to squeeze out a profit of $0.12 a share, surprising analysts that were braced for yet another loss out of the web-savvy trade platform.

It's a bold time for a turnaround. Revenue actually dipped sequentially and year-over-year, and the industry is going through a challenging period where brokers need to waive money market management fees, offer free ETFs, and scale back their commission schedules to attract and retain accounts.

However, delinquencies are also down at E*TRADE, providing the best hope yet that the company is distancing itself from its banking miscues.

Larger rivals TD AMERITRADE (Nasdaq: AMTD  ) and Charles Scwhab (Nasdaq: SCHW  ) also beat Wall Street's profit targets in recent days, so apparently analysts have been fretting more than they should about the sector.

The welcome news sent the shares higher in afterhours trading last night, breaking through the $14.20 price where E*TRADE began trading after a 1-for-10 reverse split last month.

Investors are watching E*TRADE since its prolific reverse. If it holds up well in the coming months, it will make it that much more convincing for trucker YRC Worldwide (Nasdaq: YRCW  ) and satellite radio giant Sirius XM Radio (Nasdaq: SIRI  ) to get out of their sub-buck prices through reverse splits on their own without a backlash from Mr. Market.

Success stories among reverse splits have been rare since travel portal Priceline.com (Nasdaq: PCLN  ) pulled one off seven years ago. However, reverse splits historically flop because it's usually companies on the way down. Now that E*TRADE is fashionably early to its black ink tie gala, investors are unlikely to dump the stock.

Will profitability make E*TRADE cocky enough to put an end to sector consolidation chatter? It can happen. Former Citigroup (NYSE: C  ) exec Steven Freiberg was tapped as the discounter's new CEO just a few months ago, so he's either that good or just lucky enough to achieve perfect timing in his installation. If TD AMERITRADE, Schwab, or any other financial services company looking for some serious skin in the discount brokerage space is eyeing E*TRADE as an acquisition target, the line forms to the right -- and the share price follows up the stairs.

What's that? You're still unsure about whether or not you should get a new broker? Get thee to our Discount Broker Center to learn more and compare some sponsored commission schedules.

Charles Schwab and Priceline.com are Motley Fool Stock Advisor recommendations. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz has been trading exclusively through discount brokers since 1990 but he does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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Rick Munarriz
TMFBreakerRick

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.

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