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Can E*TRADE Keep It Up?

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E*TRADE Financial  (NASDAQ: ETFC  ) was one of last week's biggest winners.

The stock moved 16% higher on encouraging payout news and a subsequent analyst upgrade.

Regulators are clearing the payment of a $100 million dividend by its banking subsidiary to the parent company, a move that E*TRADE expects to continue on a quarterly basis.

Investors shouldn't expect cash dividends, here, but the reallocation process will give the online discounter the ability to pay down its debt.

More importantly, the clearance itself is a strong indicator that regulators feel E*TRADE's banking arm is on the mend. E*TRADE was one of the many financials services companies to get slammed a few years ago during the global crisis, weighed down by its subprime mortgage business.

The reallocation approval swayed Goldman Sachs into upgrade the stock, boosting its price target from $13.50 to $19.

Shares of E*TRADE have nearly doubled since bottoming out late last year, but it's not as if the broker itself is on a growth tear. Analysts see revenue actually declining this year, and clocking in flat next year. 

Larger rivals Charles Schwab (NYSE: SCHW  ) and TD AMERITRADE (NASDAQ: AMTD  ) are growing, but not by much. Analysts see single-digit percentage revenue growth at both companies this year and again in fiscal 2014. 

It isn't easy being a discount broker these days. Customers have come to expect low commission schedules and access to commission-free ETF trading. Low interest rates have also robbed E*TRADE of one of its earlier marketing angles, where it would offer substantially higher returns on savings accounts and idle cash.

This doesn't mean things aren't going well. E*TRADE closed out its latest quarter with 4.6 million customer accounts, including 3 million brokerage accounts. Daily average revenue trades are up 8% to 150,000 over the past year. Total customer assets have grown from $193 million last summer to $220 million now.

E*TRADE may also be in a good place if interest rates continue to inch higher. Sure, that would freeze bond traders and possibly cool stock investors. However, E*TRADE would once again be able to benefit from the high interest rates that it can offer savers. BofI (NASDAQ: BOFI  ) has seen its stock more than double over the past year as it rakes in the benefits of being a branchless bank. E*TRADE is in a similar position where it can pass on cost savings to customers in the form of more compelling rates than traditional banks.

E*TRADE's been a big winner last week and over the past year, but the good times don't have to end now. 

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  • Report this Comment On September 10, 2013, at 10:27 PM, bikes8 wrote:

    "Total customer assets have grown from $193 million last summer to $220 million now."

    You mean billions. If not, average account size is a whopping $47.

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Related Tickers

9/23/2016 4:00 PM
ETFC $28.40 Down -0.10 -0.35%
E*TRADE Financial… CAPS Rating: ***
AMTD $33.12 Down -0.54 -1.60%
TD Ameritrade CAPS Rating: *****
BOFI $22.45 Up +0.24 +1.08%
BofI Holding CAPS Rating: *****
SCHW $30.67 Down -0.57 -1.82%
Charles Schwab CAPS Rating: ****