Discount broker TD AMERITRADE (NASDAQ:AMTD) will report Q1 2007 results on Tuesday, Jan. 16. Here's where you can discern the difference between its bid and its ask.

What analysts say:

  • Buy, sell, or waffle? Analysts are bullish on TD AMERITRADE, with 12 of the 15 analysts covering the company saying buy. The other three say hold.
  • Revenues. Revenues are expected to rise 86% to $517 million.
  • Earnings. Earnings, however, are forecast to be flat at $0.22 per share.

What management says:
According to CEO Joseph Moglia, "Everything we do in the next year will be based on successfully completing the integration and positioning our franchise for long-term success." If investors have lost the edgy feeling they had early in 2006, when trading activity seemed to subside, they came back strong in the last half of the year, opening more accounts at a lower cost to the company. That said, average trades per day of 204,000 in the fourth quarter were off from the 253,000 logged in the third. In November, however, that climbed back up to 248,000 trades per day.

What management does:
Acquiring its new customers at lower cost has helped TD AMERITRADE grow the top line substantially, though the cost of integrating the companies it has acquired continues to fall to the bottom line.

But importantly, in the year-ago period, the company had $85 billion in client assets; today, that stands in excess of $261 billion. Back then, the company was handling 25% fewer trades per day, it was signing up one-third fewer new accounts, and it was earning interest on margin balances that were half of what they are today. In short, compared with a year ago, TD AMERITRADE is a different company today than what it appears to be.

Margin %

06/05

09/05

12/05

03/06

06/06

Selling, general, and administrative

33.4

33.2

36.6

36.6

35.1

Net

33.9

33.6

34.8

32.3

30.8
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Consolidation in the discount brokerage market has allowed TD AMERITRADE to stand out as a top-notch player in a much less crowded field. It will need to continue to hold the line on costs, and to keep the cost of acquiring new customers from creeping up, even as it takes in less money per trade from the commission cuts instituted last year. To do that, it needs to drive up average transactions volume, which is feasible with the lower commission structure and new accounts brought in.

While that type of philosophy runs counter to the buy-and-hold ideas that float around here at the Fool, TD AMERITRADE finds itself with a price-to-earnings ratio on par with those of its competition, which means there's not much of a margin of safety to play with. It also needs to keep an eye on the zero-commission brokerages, which, while not currently eating into TD AMERITRADE's business model, may soon drive it to cut its own prices further.

Related Foolishness:

Competitors:

  • Charles Schwab (NASDAQ:SCHW)
  • E*Trade (NASDAQ:ETFC)
  • Merrill Lynch (NYSE:MER)
  • optionsXpress (NASDAQ:OXPS)
  • TradeStation Group (NASDAQ:TRAD)

Charles Schwab and optionsXpress are recommendations of Motley Fool Stock Advisor. Try a 30-day guest pass and find out why they were bid up as recommendations over the competition.

TD AMERITRADE is a three-star company at Motley Fool CAPS, the Fool's new stock rating service. Join today to see why investors think this company is being offered at a discount. It's free!

Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. He has a brokerage account with TD AMERITRADE. You can see his holdings here. The Motley Fool has a disclosure policy.