What To Expect From Ameritrade’s Q4 Earnings

TD Ameritrade (NASDAQ: AMTD) is scheduled to announce its fiscal fourth quarter results on Monday, October 22. Consensus market estimates call for the company to report revenue of $1.4 billion and adjusted EPS of 88 cents. Interest earning assets, which generate about 49% of the company’s revenues, grew nearly 26% in the first nine months of fiscal 2018. The rate hikes over the past year – driven by improvements in U.S. GDP and employment rates – and the company’s acquisition of Scottrade led to a surge in assets. We expect this growth momentum to continue into Q4 and further drive revenue from interest earning assets. We expect over 29% growth in revenues for this segment in 2018, and expect the fiscal fourth quarter growth to be along similar lines.

We have a $57 price estimate for Ameritrade, which is substantially higher than the current market price. The charts have been made using our new, interactive platform. You can click here for our dashboard on Our Outlook For Ameritrade In Q4 & FY 2019 to modify different drivers, and see their impact on the revenue, earnings, and price estimate for Ameritrade.

Factors Driving Near Term Growth

Continued momentum from multiple Fed rate hikes, coupled with the Scottrade acquisition, contributed to a 61% surge in Ameritrade’s interest-earning assets through the first nine months of fiscal 2018. With the integration of Scottrade and more planned hikes in the near term, we expect the interest generated on these assets – which contributes around 49% of the company’s overall revenues – to drive near-term growth, due to its high asset base and moderate current yield on these assets in comparison to competitors.

Ameritrade’s earnings could be impacted by the company’s decision to slash its commission per trade. Since Ameritrade generates around 38% of its revenue from trading commissions, we expect some pressure on trading revenues. However, the brokerage’s trading volumes for the fiscal first three quarters grew by over 40% in comparison to the prior year comparable period, which was largely driven by the Scottrade acquisition. Further, improvement in U.S. macro conditions, reduced trading commissions, increased volatility in the stock market, and the integration of Scottrade should drive robust growth in trading volumes in the near future. This should more than offset the pressure on trading revenues.