Why Is TD Ameritrade (AMTD) Down 6.3% Since Last Earnings Report?

It has been about a month since the last earnings report for TD Ameritrade (AMTD). Shares have lost about 6.3% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to its next earnings release, or is TD Ameritrade due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

TD Ameritrade’s Q3 Earnings & Revenues Beat Estimates

TD Ameritrade pulled off a positive earnings surprise of 12.7% in third-quarter fiscal 2018 (ending Jun 30). The company reported earnings of 89 cents per share, significantly beating the Zacks Consensus Estimate of 79 cents. Moreover, results were up 85% from the prior-year quarter.

The quarter displayed higher revenues and elevated expenses. Rise in net interest margin (NIM) was also recorded. Notably, the company recorded an increase in average client trades per day, indicating improvement in trading activity.

Including certain non-recurring items, net income for the quarter came in at $451 million or 79 cents per share compared with $231 million or 44 cents reported in the prior-year quarter.

Higher Revenues Offset Escalating Expenses

Net revenues for the reported quarter came in at $1.38 billion, surpassing the Zacks Consensus Estimate of $1.35 billion. Also, net revenues surged 48.4% year over year. The rise chiefly stemmed from higher transaction-based and asset-based revenues.

Total asset-based revenues for the quarter amounted to $859 million, up 49.9% year over year, driven by higher bank deposit account fees, as well as investment product fees and net interest revenues.

Commissions and transaction fees climbed 46.3% from the prior-year quarter to $490 million. Further, the quarter's NIM came in at 1.94%, expanding 39 basis points year over year.

Total operating expenses flared up 39.9% year over year to $751million. The rise mainly resulted from increase in a number of expenses, including employee compensation and benefits, professional services, occupancy and equipment costs, and other expenses.

Trading Activity Improves

Average client trades per day for the fiscal third quarter increased 54% year over year to 784,000.

As of Jun 30, 2018, net new client assets totaled $20 billion, up 10% year over year. Total client assets came in at $1.2 trillion, up 39%.

Average spread-based balance was $146.6 billion, jumping 24.4% year over year, and average fee-based investment balance was up 35.4% to $256.8 billion.

Balance Sheet Position

As of Jun 30, 2018, TD Ameritrade’s cash and cash equivalents were $1.3 billion compared with $1.5 billion reported as of Sep 30, 2017. Shareholders’ equity was $7.9 billion compared with $7.2 billion as of Sep 30, 2017.

Outlook

The company expects to deliver upper-end of the projected GAAP earnings of $1.85-$2.45 per share and non-GAAP earnings of $2.55-$3.05 per share in fiscal 2018.

Management expects to realize synergies of $175-$225 million in fiscal 2018 from the Scottrade acquisition.

The company expects certain expenses to remain flat in fiscal fourth quarter, excluding advertising expenses, which are likely to increase $10-15 million. It expects acquisition-related expenses to be around $50 million.

Further, on the basis of expected declines in acquisition costs, intangible amortization, bad debt expenses and additional expense synergies, fiscal 2019 estimated GAAP operating expenses before growth is nearly $2.8 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, TD Ameritrade has a subpar Growth Score of D, however its Momentum is doing a lot better with an A. However, the stock was also allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable soley for momentum based on our styles scores.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, TD Ameritrade has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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