UBS Securities analyst Brennan Hawken upgraded E*TRADE Financial Corp. and downgraded TD Ameritrade Holding Corp. after the companies offered commission-free trading.
At E*TRADE, the price cuts will "clearly" diminish earnings power. However, its leading corporate services segment and active trader platform remain "attractive," and investors' focus on the EPS impact of price cuts understates its stand-alone prospects. Hawken does not expect the company to achieve its five-year EPS target of $7, and this could result in E*TRADE pursuing strategic alternatives.
Hawken upgraded E*TRADE to "buy" from "neutral." He lowered the 2019 EPS estimate to $3.95 from $4.10 and the 2020 estimate to $3.40 from $4.25.
"We expected pricing to be more rational. We were wrong," Hawken's wrote in the note on TD Ameritrade.
The company does not have a permanent CEO, and "this lack of leadership with a tenure that will stretch beyond a few months means current leadership does not need to deal with negative repercussions of today's decisions."
Hawken lowered TD Ameritrade to "neutral" from "buy." He kept his 2019 EPS estimate unchanged at $3.94 and lowered the 2020 estimate to $2.74 from $2.77.
