A Closer Look At Ameritrade’s Valuation

TD Ameritrade (NASDAQ: AMTD) has seen impressive growth in recent years. The brokerage’s revenue grew 10% and its stock price jumped 20% in 2017. 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 should also help drive asset management fees. Improvement in U.S. macro conditions should drive trading volumes and consequently, trading commissions. The acquisition of Scottrade in 2016 is expected to further boost the brokerage’s customers and asset growth in the future.

Currently, we have a price estimate for Ameritrade at $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, bottom-line, and valuation.

Interest earning revenues should be driven by rate hikes and Scottrade’s acquisition.

Investment product balances and fees should be driven by effective client advisory and recently introduced robo-advisory.

Trading commissions should be driven by improvement in macro conditions and Scottrade’s acquisition.

Net revenues are expected to increase 17% in 2018.

The Scottrade acquisition and competition will likely keep margins under pressure. Meanwhile, the corporate tax overhaul in the U.S. should drive net income.

We have used a P/E ratio of 19 for our valuation estimate, but you can modify the multiple in order to come up with your own valuation estimate for the company.