As the straggler in the discount brokerage space, E*Trade (NYSE:ETFC) typically finds itself posting quarterly reports days after rivals TD AMERITRADE (NASDAQ:AMTD) and Charles Schwab (NASDAQ:SCHW) step up to the conference-call podium.

This time, at least, it was worth the wait. Revenue inched 9% higher to $664 million. Earnings before a one-time hit in its institutional equity business rose to $0.42 a share. The bottom-line showing is well ahead of the $0.36 per share it earned a year earlier, and the $0.40 per share that Wall Street was expecting.

Despite its financial bent, E*Trade wasn't stung by subprime woes in its lending business. It actually improved its credit quality during the period, with a reduction in bad loans. And with 45% in operating margins and watching over $213 billion in retail client assets, E*Trade is well-positioned, with or without any further industry consolidation.

OK, so maybe investors aren't convinced that E*Trade will escape free of scrapes from the subprime meltdown. Of the three discount brokers, E*Trade's stock is the only one trading lower than it did when the three companies posted their first-quarter results three months ago.

The end result is that E*Trade is starting to look like a relative bargain in this growing sector. Let's stack them up, shall we?


2007 EPS Guidance

2007 P/E









Charles Schwab




*Schwab did not provide guidance. The $0.93 is an analyst consensus estimate.

TD AMERITRADE has been on a roll, fueled by recent buyout speculation. Schwab, as the market leader, always seems to trade at a premium multiple. Still, E*Trade stands out as a cheapie. It continues to grow, now trading at just 10 times Wall Street's estimate of $1.91 per share come 2008.

The markdown doesn't seem fair. Even during yesterday's call, E*Trade emphasized the high FICO scores of its loans. The company believes that its high-quality borrowers would be more likely to refinance than to default on their loans. Besides, at the end of the day, this is still a discount broker, and the company is faring well in terms of subscriber growth as it opens new regional branches.

In concert, the three discount-broker bellwethers are looking pretty healthy. A few quarters ago, investors may have been concerned with unlikely providers offering commission-free trading like Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), and They don't seem to be much of a problem at the moment.

Investors know that quality companies are worth buying at low prices. When the stock happens to belong to a discount broker itself -- perhaps even your broker -- it seems to be a win-win situation.

Charles Schwab is a Motley Fool Stock Advisor recommendation, and Bank of America is a Motley Fool Income Investor recommendation. A free trial subscription to either newsletter is waiting with your name on it if you want to learn more.

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.