Despite Pop, E*Trade Is Sector's Valuation Runt

Riding a wave of buying in the financial sector, online brokerages and banks have surged over the past two sessions, though some more than others. Despite a lack of news, E*Trade(ET Quote) is up about 18% since Friday, whereas peers Ameritrade(AMTD Quote) and Charles Schwab(SCH Quote) rose 10% and 9%, respectively.

E*Trade's divergence from the pack highlights how differently investors and analysts value the three companies. A race to diversify and continuing consolidation in the sector have created wide gaps between their multiples. Whereas E*Trade currently trades at 21 times estimated 2002 earnings, Ameritrade trades at 29 times 2002 estimates and Charles Schwab trades at 33 times estimates.

Analysts said the pop in E*Trade shares reflects the fact that they've fallen further than other sector stocks over the past two months on rumors the company is hunting for more acquisitions. In an effort to transform itself into a full financial services company, E*Trade has bought more than a dozen companies in the past several years, and is thought to have a $400 million treasure chest for new acquisitions.

War Chest

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