Snowling likes E*Trade because he said the firm is trading at a discount to its peers. Still, he said, the company's addition to the S&P 500 index after the close of trade March 31 should help to increase its visibility and narrow the valuation gap. He is also bullish on Ameritrade, noting that the firm is highly leveraged to the retail investor. Like other analysts, however, Snowling remains cautious on Schwab.
"Increased 2004 spending plans on advertising, compensation and employee benefits diminish the company's earnings growth expectations relative to the group," he said, adding that outstanding regulatory issues could also hamper the firm's short-term performance. Schwab is still under investigation for improper mutual fund trading.While results from the major online brokers will likely be encouraging for the first three months of the year, investors will be listening for any comments regarding the recent shift in investor behavior. The S&P 500 has fallen 2% since April 5 and the Nasdaq has shed 2.6% amid concern that stronger economic data will prompt the Federal Reserve to raise interest rates, possibly as soon as August. Since retail investors tend to trade more when the market is performing well, a downturn in stocks could dampen trading activity and put a dent in brokerage commissions at a time when earnings comparisons get slightly more difficult.