25 October 2006

TD Ameritrade Q4 2006 Earnings

In a research note published yesterday, analysts at Friedman Billings reiterate their 'outperform' rating on Ameritrade. The target price has been reduced from $21 to $19.50.
Bloomberg, Sybil Chahbandour, 25 October 2006

TD Ameritrade Holding Corp. was downgraded from 'outperform' to 'in-line' by analyst David Trone at Fox-Pitt, Kelton.
MarketWatch, Greg Morcroft, 25 October 2006

Sandler O'Neill analyst Rich Repetto Wednesday trimmed his earnings estimate and price target for online financial services firm TD Ameritrade, but left his buy rating on the share after it reported earnings a penny below estimates yesterday. Repetto trimmed his full year earnings estimate to $1.16 from $1.2 and cut his target price to $21, from $23.75.
Scotia Capital, 25 October 2006


• TD Ameritrade reported Q4/06 cash earnings of US$0.21 per share versus US$0.24 per share in the previous year, slightly below IBES estimates of US$0.23 per share (GAAP US$0.22 per share). Fiscal 2006 cash earnings were US$0.91 per share versus US$0.83 per share in F2005.

• AMTD's updated earnings guidance for fiscal 2007 was essentially unchanged with a range of US$0.98 per share to US$1.22 per share from US$0.99 - US$1.21 per share.

What It Means

• TD Bank indicated AMTD (TD owns 39.5%) earnings contribution this quarter would be C$53 million or C$0.07 per share versus C$55 million or C$0.08 per share in the previous quarter.

• AMTD shares were down 4.8% at market close. Every 5% change in AMTD's share price impacts TD's value by $0.30 per TD share.

• TD Bank - 2-Sector Perform
BMO Capital Markets, 24 October 2006

For the fourth quarter ending September, TD Ameritrade reported net earnings of US$0.21 inclusive of US$0.01 of one time gains. This compared to street estimates of US$0.22. The variation reflects slightly higher expenses. AMTD has widened its guidance for 2007 slightly from US$0.99-1.21 to US$0.98-1.22. TD Bank subsequently announced that that this would translate into a contribution to TD of $53mm in the fourth quarter, marginally behind our estimate of $55mm. The variation is about one quarter of one cent per TD share. Though the impact of these results is minor on TD, the outlook statement by AMTD seems to be less robust; it is assuming somewhat higher trading volumes offset by slower reduction in costs. AMTD management has indicated that the decision to delay some cost reductions is intended to ensure a better client experience. As we look at it, AMTD is broadly on track to deliver the upside potential from the Waterhouse merger

Bloomberg, Bradley Keoun, 24 October 2006

TD Ameritrade Holding Corp., the third-largest online broker, reported profit and revenue for the fiscal fourth quarter that missed analysts' estimates as the company slashed commissions to keep up with rivals' price cuts. TD Ameritrade shares fell 4.8 percent to a three-month low.

Net income in the three months ended Sept. 29 rose 36 percent to $128.1 million, or 21 cents a share, the Omaha, Nebraska-based company said in a statement today. Excluding the impact of investment gains and losses, earnings per share were 20 cents. The average estimate in an analyst survey by Thomson Financial was for profit of 22 cents a share.

Chief Executive Officer Joseph Moglia cut TD Ameritrade's base price for trades to $9.99 in April from $10.99 after Charles Schwab Corp., the No. 1 discount broker by assets, reduced its rates by more than 60 percent in three years. While TD Ameritrade is anticipating that customers will generate more profit by paying fees for premium services, the company made less per transaction last quarter than many analysts expected.

"It's no secret that this is a pretty competitive business," said Richard Herr, an analyst at Keefe Bruyette & Woods Inc. in New York who rates the stock "outperform" and doesn't own the shares. "They're opening themselves to a new segment of clients -- those that want to put their money with TD Ameritrade for long-term investing."

Revenue rose 78 percent to $488.7 million because the quarter included results for TD Waterhouse USA, the rival brokerage that Ameritrade Holding Corp. bought for $1.3 billion in January to create TD Ameritrade. Analysts' revenue estimates ranged from $493 million to $517 million.

While the TD Waterhouse purchase also helped boost net income from $94.4 million, earnings per share declined from 23 cents because Ameritrade paid for the acquisition by issuing new stock. For the full fiscal year, TD Ameritrade earned $526.8 million, or 95 cents a share, up from $339.8 million, or 82 cents, the prior year.

During the quarter, TD Ameritrade had a $4 million cost to compensate clients whose accounts were infiltrated by computer criminals, Chief Financial Officer Bill Gerber disclosed on a conference call with analysts today. Katrina Becker, a spokeswoman for the company, said some customers suffered losses because of bogus trading by unauthorized users from Eastern Europe and Asia.

Moglia told the analysts that the cyber-criminals mostly targeted TD Ameritrade customers who used public computers outside the U.S. The company may be able to recoup some of the losses through an insurance policy, Gerber said.

E*Trade last week disclosed losses of at least $18 million because of similar fraud. The Federal Bureau of Investigation, the Securities and Exchange Commission and the NASD are investigating the losses, TD Ameritrade and E*Trade said.

TD Ameritrade said today it expects to earn 98 cents to $1.22 a share in the fiscal year ending September 2007, a change from its previous forecast of 99 cents to $1.21. The average estimate in the Thomson survey currently is for profit of $1.20 a share.

It's taking longer than the company predicted to convert TD Waterhouse customers to TD Ameritrade's trading system, Moglia said in an interview today. The conversion, originally scheduled for December, won't be completed until March, resulting in additional costs, Moglia said.

"The key to whether or not the TD Waterhouse acquisition is going to be successful will be determined at the end of 2007," when the company is fully integrated with TD Ameritrade, Moglia said on the conference call. "It's not going to be by us having a great blowout quarter prior to that integration."

Shares of TD Ameritrade fell 79 cents, or 4.8 percent, to $15.84 in Nasdaq Stock Market composite trading.

Customers made an average of 204,480 trades per day in the quarter, TD Ameritrade reported, down 19 percent from the previous three months. Herr, the Keefe Bruyette analyst, expected 205,000 to 206,000 trades a day.

"The environment in the equity markets was not nearly as good" as it was last year, Herr said. "You had that huge drop- off in the May and June timeframe, and even though the markets got better, by then people were disengaged."

Schwab and E*Trade also reported declines in trading from the quarter that ended in June.

On the conference call, Moglia said daily trades have improved since the end of the quarter, averaging 225,000 so far this month.

The company reported an average commission of $12.76 per trade in the fourth quarter, down from $13.01 a year earlier. Excluding one-time payments related to the TD Waterhouse acquisition, the rate would have been $13.11, Gerber said on the conference call. With the adjustment, the rate fell below Lehman Brothers Holdings Inc. analyst Roger Freeman's estimate of $13.25.

Earlier this month, Bank of America Corp., the nation's No. 2 bank by assets, began offering 30 free trades a month to customers who maintain balances of $25,000. That day, TD Ameritrade shares dropped 12 percent on concern that the move might ignite a price war among online brokers.

In the interview, Moglia said he doesn't expect TD Ameritrade's average commissions to decline by more than $1 in the coming year.

"There's always pressure on pricing, but for most of the participants in the online brokerage business, they have already gone through changing their prices," he said. "I don't think there will be any significant price changes as far as 2007 goes. But, you know, we'll see."