28 March 2007

Market Volatility May Hurt TD Ameritrade

  
Financial Post, Jonathan Ratner, 28 March 2007

Market volatility in March likely hurt U.S. discount brokers like TD Ameritrade Holding Corp. and optionsXpress Holdings Inc., since their clients tend to avoid trading during periods of uncertainty, according to Goldman Sachs.

While analyst William Tanona is bullish on shares of both firms and assigns them ‘buy’ recommendations, he lowered his quarterly and fiscal 2007 earnings estimates due to their lower net interest and daily average revenue trades (DARTs).

While maintaining his estimates on other discount brokers, Mr. Tanona recently lowered his estimates for E*Trade Financial Corp., which he also rates ‘buy.’

He expects DARTs will see a 6% month-over-month decline in March for the industry as a whole, while expecting a 3% dip on an annual basis.

“While much of the percentage decline in the U.S. markets has been recouped from the late February sell-off, we believe many investors remain less active after an initial rebalance of their portfolio,” Mr. Tanona said in a note to clients, adding that firms with more exposure to derivative markets may do slightly better than others.

He expects valuations for the discount broker group to remain depressed in the near term, although the industry’s fundamentals appear in tact.

If they report better-than-anticipated DARTs in March or exceed expectations for their first quarter results, share prices could move up.

Mr. Tanona has a US$25 price target on TD Ameritrade, US$36 for optionsXpress and US$31 for E*Trade.
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