Why E*Trade Financial Corporation Is Ready to Bounce Back

Does this analyst make a good case or is it just more noise from Wall Street?

Brian D. Pacampara, CFA
Brian D. Pacampara, CFA
Apr 11, 2014 at 12:05PM
Financials

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of E*Trade Financial Corporation (NASDAQ:ETFC) gained 1% on Friday after Barclays upgraded the discount brokerage from underweight to overweight.

So what: Along with the bullish call, analyst Sherri Scribner planted a price target of $40 on the stock, representing about 22% worth of upside to yesterday's close. So while momentum traders might be turned off by E*Trade's sharp pullback in recent weeks, Scribner's call could reflect a growing sense on Wall Street that the concerns surrounding its prospects are becoming a bit overblown.

Now what: According to Barclays, E*Trade 's risk/reward trade-off is rather attractive at this point. "For ETFC, relative to last year, we are incrementally positive on a story that contains far less operational risk, has displayed sustainably strong performance in its trading business, and has significantly improved its capital profile (providing it opportunity to further enhance earnings down the line)," said Hill. When you couple E*Trade's still-hefty debt load with its steep-ish forward P/E of 18, however, I'd wait for a much wider margin of safety before buying into that bullishness.