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E-Finance Rides High on Net Sector Rally

Positive analyst reports boost E*Trade, Ameritrade and Knight/Trimark.

Like a Cinderella story in the NCAA basketball tournament, it doesn't take much to get the Internet sector rolling.

Thursday's late rally has spurred Internet stocks further today.

TheStreet.com Internet Sector

index was up 45.04, or 3.7%, to 1274.06 in recent trading.

TheStreet.com New Tech 30 was up 20.38, or 2.6%, to 808.97.

Once again, traders did not want to get left out of a move higher, while those that had gone short over the past few sessions were being squeezed, providing a double dose of fuel. And one Net subsector that has drawn the wrath of shorts, e-finance, was making a comeback.

TheStreet.com E-Finance

index was up 3 27/32, or 4.8%, to 84 15/32.

Some of the enthusiasm was stemming from positive reports on

E*Trade

(EGRP)

,

Ameritrade

(AMTD) - Get Report

and

Knight/Trimark

TST Recommends

(NITE)

from

Robertson Stephens

. Analyst Scott Appleby raised quarterly estimates and revenues for the March quarter on all three companies due to strong volumes.

Appleby upped his revenue estimate on E*Trade to $330 million from $304 million and revised the loss-per-share estimate to 16 cents from 17 cents. It was up 3 1/16, or 12%, to 29 1/4. For Ameritrade, he raised revenue estimates to $149 million from $134 million and now expects a flat quarter versus a 3-cent loss previously. It was up 1 5/16, or 6.82%, to 20 9/16. Finally, for Knight/Trimark he raised earnings per share to 90 cents from 70 cents and upped his price target to 75 to 80. It was up 3 3/8, or 7%, to 50 3/8.

Online brokerages have been beaten up lately, and while the notes may have helped, bargain pickers may be looking at the sector ahead of what are expected to be good earnings, while shorts may also be covering.

And while we were running down the Knight/Trimark note, we stumbled upon a not-so-flattering note from

Bear Stearns

. In that report, written by Amy Butte and Brian Engelbert, the analysts focus on two recent judgements against online brokerages in favor of online traders due to trade executions. It was a story that our own

Caroline Humer

focused on in a

piece last week. The analysts wrote that one of the judgements generated a risk for online brokers "that lack sound operating controls and strict margin requirements."

But the Bear Stearns analysts take the judgements one step further, writing that Knight/Trimark "may be vulnerable -- and there may be pressure on the stock -- since the firm receives more than 30% of its order flow from online brokers and generates 60% to 70% of its revenues from retail order flow."

Finally, another cautious note on the online brokerages from

Gerard Klauer Mattison

. Analyst Alan Weichselbaum writes positively about the industry in general, saying that it is expected to grow 33% compounded annually over the next several years. But while industry economics are good, he writes that they have been deteriorating. He wrote that revenues per new account are lower than those for existing accounts, as newer accounts tend to trade less and carry smaller balances. Costs to acquire new customers are rising rapidly, he wrote, causing rates of return to decline.