Online Broker Battles: Credit Suisse Goes Bullish On Charles Schwab, E*Trade

The red-hot stock market has resulted in a nice year for online brokers in 2017, even amid an aggressive pricing war in the space. One analyst recently took a close look at three of the most popular online brokers and made his picks for which stocks investors should be buying and which one they should definitely avoid.

The Analyst

Credit Suisse analyst Craig Siegenthaler initiated coverage on the following online brokers:

• He set an Outperform rating and $56 price target for E*TRADE Financial Corp ETFC.
• He set an Outperform rating and $55 price target for Charles Schwab Corp SCHW.
• He set an Underperform rating and $45 price target for TD Ameritrade Holding Corp. AMTD.

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The Thesis

According to Siegenthaler, Charles Schwab is uniquely-positioned to leverage its proprietary bank and its ETF and robo advisor businesses. Schwab will likely also benefit from rising interest rates.

Siegenthaler is also bullish on E-Trade and said the company’s focus on technology and corporate services will help it monetize its customer base. He says E-Trade may have some under-the-radar support.

“If 2018 results miss company guidance, we believe the board will then look to sell ETFC to a larger online broker, bank, or consumer finance company at a premium to the current share price,” he said.

For traders looking for even more protection, a pair trade with TD Ameritrade on the short side might not be a bad idea. Siegenthaler said the broker has lower-quality revenue sources than its peers, including a heavy reliance on trading commissions, which have been on the decline. In addition, the stock is already pricey from a valuation perspective, he said.

Price Action

All three stock were trading modestly higher on Friday. E-Trade has been the big winner in 2017, up more than 40 percent year-to-date.

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