Why E*TRADE (ETFC) Stock should be Added to Portfolio Now

E*TRADE Financial Corporation ETFC appears a solid bet now, backed by online innovations, launch of products and services, as well as the company’s renewed focus on strengthening its brokerage business, with the target of achieving 2–3% incremental growth. The company’s strong trading volumes, client focus, restructuring measures and balance-sheet growth are anticipated to yield positive results for the stock.

Moreover, the recent interest rate hike is likely to further stabilize the top line, thus creating a buying opportunity for long-term horses. Therefore, E*TRADE is a right choice now, which continues to depict robust fundamentals and improving prospects.

Additionally, E*TRADE’s shares have gained 7.0% year to date compared with the slight decline in the Zacks categorized Investment Bank industry.

Why E*TRADE is an Attractive Pick

Benefit from Rate Hike: With a rise in rates, brokerage firms are expected to engage in more investment activities. As brokerage firms earn interest income on un-invested cash in customer accounts, this rate hike will enable the brokerage firms to invest at higher rates. As E*TRADE currently derives nearly 60% of its total net revenue from net interest income, the company is set to benefit from the recent rate hike.

Strong Organic Growth: E*TRADE, with the introduction of brokerage products and services, and enhancement of capabilities on professional trading and mobile platforms, remains focused on improving its technology space, in a bid to offer a better digital experience to customers. Notably, in an effort to boost its derivatives platform, E*TRADE completed the acquisition of the online options broker – OptionsHouse – in Sep 2016. The company is focused on derivatives mix, with a target of increasing it to 35% of DARTs and also set managed account assets under management (AUM) target of $6 billion, within the next two years. It aims to achieve 2–3% improvement in its rate of annual organic growth, across accounts, assets and trades.

Furthermore, the company’s projected sales growth (F1/F0) of 15.4%, as against the nil industry average, indicates consistent upward momentum in revenues.

Earnings Strength: E*TRADE witnessed earnings growth of 6.7% in the last three–five years. In addition, the company’s long-term (three–five years) estimated EPS growth rate of 12.8% promises rewards for investors, over the long run. Also, the company has recorded an average positive earnings surprise of 20.7% in the trailing four quarters.

Strong Leverage: E*TRADE’s debt/equity ratio is valued at 0.23 compared to the S&P 500 average of 0.69, indicating relative lower debt burden. It highlights the financial stability of the company despite an unstable economic environment.

Favorable Zacks Rank: E*TRADE currently carries a Zacks Rank #2 (Buy). The bullish rank is being driven by upward earnings estimate revisions, for the last 60 days. For 2017, the Zacks Consensus Estimate increased 5.4% to $1.95; while for 2018, it inched up 1.3% to $2.27.

Stocks to Consider

Raymond James Financial, Inc. RJF has been witnessing upward estimate revisions, for the last 30 days. Further, the stock has jumped over 12.8% so far, this year. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Investment Technology Group, Inc. ITG has been recording upward estimate revisions, for the last 60 days. In addition, the company’s shares have risen nearly 7.9% so far, this year. The stock currently carries a Zacks Rank #2.

Interactive Brokers Group, Inc. IBKR has been witnessing upward estimate revisions, for the last 30 days. Over the last three months, the company’s share price has been up around 5.1%. It holds a Zacks Rank #2.

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