Bold Talk at E*Trade

The online broker blows by first-quarter expectations and adds 5 cents a share to 2004 guidance.
Publish date:

Updated from noon EDT

Suggesting that interest rate hikes aren't anathema to the entire financial industry,


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raised its guidance for the full year Friday, saying it is well prepared for changes in monetary policy.

The New York-based broker, which almost quadrupled its earnings in the first quarter, said it now expects to earn between 75 cents and 90 cents this year, compared to a prior estimate of between 70 cents and 85 cents.

"Interest rates are still historically very low and... some uptick from here is a good thing," President and Chief Operating Officer R. Jarrett Lilien told

in an interview. "It shows the economy is doing better, our earnings are doing better. In a good economy, especially in the beginnings of an economic recovery, generally you see the market do pretty well."

Despite investor concerns about rising interest rates and recent weakness in the stock market, Lilien said retail trading activity has been strong so far in April and is tracking at the higher end of expectations. E*Trade has said it expects to process an average of between 145,000 and 160,000 trades per day this year. In the first quarter, the company executed 157,000 trades per day, up 81% from the same period last year.

On a conference call, Lilien said the firm is generally insulated from higher interest rates. The shift toward floating rate consumer finance loans minimizes the risk of being locked into fixed rate assets, he said. He also noted that the firm has applied hedges to its asset portfolio, which should help the firm to profit from rising rates.

Concerns about a

Federal Reserve

rate hike have helped to send shares of E*Trade down more than 6% since April 2. But the stock rose 1.8% Friday, or 22 cents, to $12.50.

For the first quarter, E*Trade said profits -- according to generally accepted accounting principles -- hit $88 million, or 23 cents a share, compared to $21 million, or 6 cents, in the same period a year ago.

Excluding a 2-cent profit from the sale of shares in Softbank Investment Corp., E*Trade earned 21 cents, which was a penny above analysts' consensus estimates. The results were driven by healthy retail stock trading and stronger average commissions per trade.

Net revenue jumped 28% to $411 million. The firm added 37,000 new accounts in the last three months, after posting declines in the previous quarter. E*Trade said it repurchased $50 million worth of stock in the first quarter and continues to believe that its shares are undervalued.

"We were encouraged by this morning's earnings results and management's comments," said Colin Clark, an analyst at Merrill Lynch.

Going forward, Clark said he expects earnings growth to come from "slow and steady improvement" in the firm's brokerage unit, wider bank spreads and higher mortgage related revenue in the second quarter.

E*Trade was recently added to the

S&P 500

index and Lilien said he hopes this will increase the firm's visibility and close the valuation gap between the firm and its peers. "We were very happy to be added to the index, it really validates not only our model but the segment," he said.



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Charles Schwab


were also higher after E*Trade's solid results. Ameritrade gained 3.7% to 15.07 while Schwab rose 3% to $10.93.