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TD Ameritrade Gains on January Data, Upgrade

TD Ameritrade shares rose Wednesday after the company's January numbers prompted FBR Capital Markets lift its rating and price target on the stock.



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TD Ameritrade

(AMTD) - Get Free Report

shares gained ground Wednesday after the company's January numbers prompted FBR Capital Markets lift its rating and price target on the stock.

Shares rose 1.7% to $17.62 in recent trades. Volume of 4 million compared to the issue's three-month trailing daily average of 5.96 million. Based on Tuesday's close at $17.33, the stock was off 12.2% in 2010.

After Tuesday's closing bell, the online broker said its monthly trading metrics rebounded in January after several months of declines. TD Ameritrade's rivals,

Charles Schwab (SCHW) - Get Free Report


E*Trade Financial

(ETFC) - Get Free Report

have also reported improved daily trading metrics compared to the December period.

TD Ameritrade said its DARTs

daily average revenue trades came in at 421,000 last month, up 22% from December and 38% higher than the year-earlier comparable period. Total client assets dipped 1% to $314.5 billion at Jan. 31 from the prior month, but rose 40% from January 2009 fueled by TD Ameritrade's acquisition last year of online brokerage firm, thinkorswim.

The company reported average spread-based balances of $51.2 billion for January, up slightly from December's level, but nearly double where it was at the year before. Spread-based assets encompass client and brokerage-related assets, including client margin balances, segregated cash, deposits paid on securities borrowings and other cash and interest earning assets, TD Ameritrade said.

Average fee-based balances of $58.7 billion, on the other hand, rose 2% from December but fell 3% from January 2009. Fee-based investment balances include client assets invested in money market funds, other mutual funds and company-specific investment programs, TD Ameritrade said.

In a research note, FBR Capital analyst Matt Snowling says the upgrade to outperform reflects "increased confidence" in TD Ameritrade's ability to demonstrate organic client asset growth and earnings growth that exceeds its peers, including Charles Schwab and E*Trade Financial.

"TD Ameritrade can continue to earn higher revenues per dollar of client assets and better operating margins than online broker peers and most asset managers, while generating strong organic asset growth and benefiting substantially from any rise in short-term interest rates," the note says. "As a result, we expect both earnings growth and multiple expansion to drive the shares higher from current levels.

Snowling adds that the decline in TD Ameritrade's stock since Schwab announced plans to cut commission rates in late January presents an "attractive entry point" for investors since he believes that "the industry is not on the verge of a traditional price war and that Ameritrade will not have to make any meaningful adjustment to its pricing scheme."

"As a result, we see upside to the stock in the short term, as fear over a pricing war subsides, as well as longer term, given our outlook for EPS growth and multiple expansion," Snowling writes in the note.

Snowling tweaked upwards his 2010 earnings estimate for Ameritrade by 3 cents to $1.14 a share and raised his 12-month price target by $1 to $21.

E*Trade said in its release early Wednesday that its DARTs rose 18% on a sequential basis to 183,865 in January. (This includes U.S and international operations.) Net new brokerage assets totaled $600 million last month, up slightly from December and the year-earlier period. Net new customer assets, which includes the runoff at E*Trade Bank, was $200 million. Total customer assets dropped 3.5% from December, but rose 36% from the year-earlier period to $147.8 billion, E*Trade said.

E*Trade shares were up 2% to $1.55 in recent trades, while Schwab shares were falling 1% to $17.63.

--Written by Laurie Kulikowski in New York.