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TheStreet Open House

10 Most Profitable Banks Trading Below Book Value

10. E*Trade Financial
Shares of E*Trade Financial (ETFC) closed at $9.52 Monday, returning 20% year-to-date, following a 50% decline during 2011.

The shares trade just below their June 30 tangible book value, according to Thomson Reuters Bank Insight, and for 17 times the consensus 2013 earnings estimate 57 cents a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is 42 cents.

For the 12-month period ended June 30, E*Trade's operating return on average assets (ROA) was 0.34%, while the company's return on average assets (ROE) was 3.32%, according to Thomson Reuters Bank Insight.

While E*Trade Financial is mainly an online brokerage firm, the company is included here because it holds E*Trade Bank, which had $47 billion in total assets as of June 30.

E*Trade Financial reported second-quarter net income of $40 million, or $0.14 a share, declining from $63 million, or $0.22 a share, in the first quarter, and $47 million, or $0.16 a share, during the second quarter of 2011. Second-quarter net revenue declined to $452 million, from $489 million the previous quarter, and $518 million a year earlier.

While outgoing CEO Steven Freiberg said the company was "encouraged" by its success in "growing the brokerage franchise and in reducing our legacy credit exposure," he also said that "we continue to face a challenging macro-economic environment with low levels of retail investor engagement," and that "accordingly, we are increasing our focus on strategic cost management, deleveraging, and risk reduction to provide a solid basis for earnings and capital efficiency."

Credit Suisse analyst Howard Chen has a neutral rating on E*Trade, with a target price of $10, and said on August 15 after the company provided an update on its trading volumes in July that "retail brokerage fundamentals at E*Trade were mostly healthy during the month as trading activity improved and net new assets stayed positive."

Factoring in the July trading numbers and a $13 million severance payment to Freiberg, Chen lowered his 2012 EPS estimate for E*Trade by two cents to 46 cents, while maintaining his 2013 EPS estimate of 55 cents and his 2014 EPS estimate of 80 cents.

The analyst said that "despite resilient trends in the core brokerage franchise, mortgage/credit market conditions have been a drag on earnings," and that "while ETFC has taken actions to help alleviate capital concerns and shift the business model back toward the core retail brokerage franchise, we see limited earnings power exiting the cycle given the magnitude of dilution taken to date."

ETFC Chart ETFC data by YCharts

Interested in more on E*Trade Financial? See TheStreet Ratings' report card for this stock.

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