How Will Ameritrade Perform In The Next 3 Years?

by Trefis Team
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TD Ameritrade (NASDAQ: AMTD) has seen impressive growth in recent years. The brokerage’s revenue grew at a CAGR of 8% and stock price tripled in the last five years. With the expectation of rate hikes in the upcoming years, we expect significant growth in interest earning assets and related revenues going forward. The company’s continued efforts in providing its customers effective financial advisory services should help drive asset management fees. Further, improvement in U.S. macro conditions should drive trading volumes and consequently, trading commissions. The acquisition of Scottrade in 2016 should also further drive the brokerage’s customer and asset growth going forward.

Currently, we have a price estimate for Ameritrade of $47, which is below the market price. We have also created an interactive dashboard which shows the forecast trends; you can modify the key value drivers to see how they impact the company’s revenues and bottom line.

Ameritrade’s investment product balances and revenues from these assets have seen over 14% growth annually over the last 5 years. With increasing demand for financial advisory and Ameritrade’s foray into robo-advisory, we expect 10% and 26% annual growth in assets and revenues, respectively.

Meanwhile, the Fed’s interest rate hikes drove interest earning assets and related by about 9% annually over the past five years. With the expectations of further hikes in the near term, we expect the brokerage to sustain growth momentum across interest earning assets.

Increased competition from discount and traditional brokerages led Ameritrade to reduce its commissions, cutting commissions per trade by nearly 40% earlier in 2017. However, the acquisition of Scottrade drove trading volumes and managed to offset the losses due to declines in revenue per trade. Improvement in U.S. macro conditions and reduced trading commissions should drive trading volumes.

Growth in yields and interest rate hikes should drive the company’s margins. Additionally, the recent corporate tax cut is likely to boost its net income.

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