Wednesday, July 12, 2006

Bank of America upgrades TD Ameritrade

Forbes, Mary Crane, 12 July 2006

Banc of America has upgraded TD Ameritrade to "buy" from "neutral" as the shock of the TD Waterhouse acquisition is absorbed and earnings per share rise.

Analyst Michael Hecht said the online broker's stock has been weak on seasonal concerns about retail activity, pricing and concerns over integrating the U.S. operations of TD Waterhouse, which Ameritrade bought in early 2006.

But despite concerns about low-single digit growth in retail stock trading, he said near-term concerns are overdone.

Ameritrade's earnings per share should grow by 25% each year for the next two years as TD Waterhouse's securities business is integrated, Hecht forecasted.

"Ameritrade [has] maintained the right cost structure to maintain a very profitable business model which has less variability in fact than most investors probably realize."

Hecht raised his price target on TD Ameritrade stock to $20 from $19 to reflect his new 2007 earnings estimate of $1.42, up 3% from $1.21.

The risk-to-reward ratio on the stock also looks favorable, the analyst added.

If activity rates remain at trough levels of 3.6%, the downside worst-case scenario stock price would be $13 versus the current $20 price target.
MarketWatch, Greg Morcroft, 11 July 2006

Analysts at Bank of America Tuesday upgraded shares of online financial services firm TD Ameritrade to buy, saying short -term concerns about retail activity and pricing cuts are overblown. The analysts also raised their price target on the shares to $20 from $19. "Despite our secular concerns about low-single digit growth in retail stock trading given continued pricing pressures as well as cyclical and secular concerns about net interest profits, we expect AMTD to deliver 25% average annual EPS growth the next two years as expense saves from the TD Waterhouse acquisition flow through and de-leveraging (as AMTD uses its substantial free cash flow to reduce debt) justifies at least a mid-teens multiple for the stock" the researchers concluded.