E*TRADE Earnings Estimates Move Higher on Back of Strong Q1

E*TRADE's strong showing in the first quarter has been well received by Wall Street analysts, which in the past week have raised earnings estimates on the discount brokerage for the remainder of the year. According to Zacks Investment Research, E*TRADE's earnings and comments about the remainder of the year resulted in several analysts revising their estimates.

"In less than a week since its report, we have seen five revisions to its 2018 EPS estimates, with 100% agreement to the upside among revising analysts. That same ratio is also present in terms of fiscal 2019 revisions," Zacks wrote in a research report. The research firm noted that its estimate for E*TRADE Financial Corporation's (ETFC) fiscal 2018 EPS has increased $0.17 in a week, while the fiscal 2019 earnings estimate has jumped $0.15 per share in the same time frame.

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"For many investors, improving analyst sentiment is just part of the picture, and it is still important to make sure we are not overpaying for this revision activity. Luckily, E*TRADE is not outside the range a value investor would look for," wrote Zacks. "The stock is trading at a respectable 16.5x forward 12-month earnings. That is a premium to its industry's average of 11.5x, but it is certainly not outrageous. Meanwhile, the stock is actually trading at a discount to its industry when we factor in earnings growth."

For the first quarter, the New York-based online brokerage reported net income of $247 million, or diluted EPS of $0.88, and revenue of $708 million. Wall Street, according to Zacks Investment Research, had expected the brokerage to weigh in with EPS of $0.79 and revenue of $690 million. During the quarter, E*TRADE saw a 3% increase in net new brokerage accounts, adding 59,685, and net new brokerage assets of $5.3 billion. The online brokerage ended the first quarter with $392.8 billion in customer assets. Daily average revenue trades (DARTs) of 309,000 marked a company record, as did derivative DARTs of 98,000. DARTs provide a way to measure the performance of a brokerage because they show investors' willingness to invest in stocks.

During a conference call to discuss first quarter results with Wall Street, which was covered by Seeking Alpha, E*TRADE CEO Karl Roessner noted that, while customers "truly leaned into the market, more than doubling typical Q1 net buying and driving margin receivables to another all-time high," the brokerage is seeing a moderation in trades in April. According to the executive, April is tracking down 13% so far from the levels seen in March. "If history repeats itself, when markets go down or volatility starts to come out of the marketplace, you would see a rise in some of the cash balances, and in this environment, we'd be extremely pleased with that," said the executive. With interest rates rising, brokerages make money off the cash sitting in accounts.