Analysts Break Down The Best Discount Brokers Heading Into Q1 Earnings

Discount broker earnings season is just around the corner, and several Wall Street analysts have weighed in on their favorite stocks before the important numbers come out. Overall, analysts seem bullish on discount brokers, but it’s still a stock picker’s game.

William Blair’s Take

William Blair analyst Chris Shutler is bullish on TD Ameritrade Holding Corp. AMTD and Charles Schwab Corporation Common Stock SCHW. Schwab is William Blair’s top financial services stock pick of 2018.

“We believe Schwab’s core growth drivers are intact, aided by tremendous brand equity, its multichannel approach to financial advice (branches, phone, online), leading positioning in the RIA channel, and willingness to embrace low-cost passive products,” Shutler said in a note this week.

He also said TD Ameritrade will likely benefit from exceptionally strong trading activity in the volatile first quarter.

Bernstein Cautious

Bernstein analyst Christian Bolu said there are several opportunities out there in the discount broker space right now, but traders need to be selective. In general, he said the market background couldn’t get any better for brokers given tax reform, retail trading activity, rising asset prices and lack of competition from deposits.

Bernstein initiated Outperform ratings on TD Ameritrade, E-Trade Financial Corp ETFC and LPL Financial Holdings Inc LPLA. Bolu said the trend of consolidation will likely continue to be a key theme.

“Our top picks are Outperform-rated LPLA (consolidation beneficiary) and AMTD (Scottrade monetization story),” he wrote in a note.

Morgan Stanley Weighs In

Morgan Stanley analyst Michael Cyprys said E-Trade and Charles Schwab are the two best-positioned discount brokers heading into earnings season. Cyprys said the one-two punch of higher trading activity and supportive interest rates will continue to drive earnings upside in top stocks.

“For ETFC we see 6% upside to consensus and expect strong net interest income and trading activity to lead to an operating margin surprise vs management guidance,” Cyprys said.

He also anticipates a 5 percent earnings surprise from Schwab and $15 billion in bulk transfers to the bank.

Morgan Stanley has Outperform ratings on both Charles Schwab and E-Trade.

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