Sector Snap: Online Brokers Upgraded

NEW YORK (AP) — An analyst on Tuesday upgraded four online brokerage firms amid expectations for expansion in the sector during the coming quarters.

Shares of three of the four firms upgraded — Charles Schwab Corp., optionsXpress Holdings Inc. and TD Ameritrade Holding Corp. — rose in morning trading. Only shares of TradeStation Group Inc. fell.

Raymond James analyst Patrick O'Shaughnessy wrote in a research note that online brokerage firms have remained healthy during the past quarters despite the ongoing recession and credit crisis, but earnings have declined because of falling interest rates. With rates at their bottom, earnings growth is likely to occur thanks to strong business models, O'Shaughnessy said.

In the near-term, continued strong retail trading volumes will help bolster earnings at the firms, O'Shaughnessy said. Over the long-term, growth potential includes asset flows from full-service brokers, increased trading of derivatives products and customer education programs, he said.

O'Shaughnessy increased his rating on TD Ameritrade to "Strong Buy" from "Outperform" and increased his price target to $22 from $18.