Tags: AMTD | financials | brokerage | Ameritrade

TD Ameritrade Positioned for Rising Rates

By Tim Plaehn   |   Tuesday, 23 Aug 2011 11:02 AM

TD Ameritrade (AMTD) is a provider of investment brokerage services, both online and through local offices. Company revenues are split between transaction fees, such as stock and other commissions, and interest earnings on assets and deposits under management.

For TD Ameritrade, earnings have been relatively flat for the last five years. Net income per share starting in fiscal year 2007 up through the (estimated) end of 2011 has ranged from $1.01 to $1.33. The 2009 purchase of options-trading broker ThinkorSwim for three-quarters of a billion dollars did little to improve the bottom line.

Over the last year, TD Ameritrade has seen increasing asset-based revenues. At the same time, transaction revenues have been falling. For the 2011 third quarter, the former increased by 14 percent year-over-year to $372 million and transaction revenues declined by 15 percent to $282 million. Total revenues for the quarter declined 1 percent. The big jump in assets under management has been propelled by a growing balance of FDIC-insured deposit accounts. The value of these accounts has doubled to over $50 billion, up from $25 billion in 2009.

Need rising rates

To truly benefit from the increased level of assets under management, especially the insured deposit base, TD Ameritrade needs interest rates to start increasing. These assets are priced to benefit the company if rates rise. A comparison in the recent earnings presentation noted that a 25 basis point increase in the federal funds rate would result in a 7-cent increase in the annual earnings per share. The company would need $30 billion in new fee-based assets to get the same boost in earnings.

The analysts at UBS recently lowered their target price for AMTD down to $16 from $21 per share while maintaining a neutral rating on the stock. The company reports next on Oct. 26.

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TD Ameritrade (AMTD) is a provider of investment brokerage services, both online and through local offices. Company revenues are split between transaction fees, such as stock and other commissions, and interest earnings on assets and deposits under management. For TD...
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