Company Profile (excerpt from Reuters): E*Trade Financial Corporation, incorporated on September 4, 2003, is a financial services company. The Company provides online brokerage and related products and services primarily to individual retail investors under the brand E*TRADE Financial. The Company also provides investor-focused banking products, primarily sweep deposits, to retail investors. It provides its services to customers through its digital platforms and network of industry-licensed customer service representatives and Financial Consultants, over the phone and by e-mail. It operates federally chartered savings banks with the primary purpose of maximizing the value of deposits generated through its brokerage business. The Company’s hybrid service delivery model is delivered through various digital platforms: E*TRADE and OptionsHouse products. It offers trading applications for smartphones, tablets and watches, which manages accounts and offers stock and portfolio alerts. Its active trading platform is a software-based trading application that offers trading tools, idea generation and analysis, and advanced portfolio and market tracking. Its digital platforms are complemented by its offline channels, which include its network of customer service representatives and financial consultants and its round the clock customer service available via phone, e-mail and online.
Downloadable PDF version of this valuation:
ModernGraham Valuation of ETFC – January 2019
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass all 6 of the following tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $11,745,487,126 | Pass | |
| 2. Earnings Stability | Positive EPS for 10 years prior | Fail | ||
| 3. Dividend Record | Dividend Payments for 10 years prior | Fail | ||
| 4. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | -171.59% | Fail | |
| 5. Moderate PEmg Ratio | PEmg < 20 | 18.96 | Pass | |
| 6. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 1.84 | Pass | |
| Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor. | ||||
| 1. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 2. Dividend Record | Currently Pays Dividend | Fail | ||
| 3. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $2.51 |
| MG Growth Estimate | 15.00% |
| MG Value | $96.66 |
| Opinion | Undervalued |
| MG Grade | D+ |
| MG Value based on 3% Growth | $36.40 |
| MG Value based on 0% Growth | $21.34 |
| Market Implied Growth Rate | 5.23% |
| Current Price | $47.59 |
| % of Intrinsic Value | 49.23% |
E*TRADE Financial Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.4 in 2014 to an estimated $2.51 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.23% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.
At the time of valuation, further research into E*TRADE Financial Corp revealed the company was trading above its Graham Number of $46.23. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 18.96, which was above the industry average of 18.
E*TRADE Financial Corp scores quite poorly in the ModernGraham grading system, with an overall grade of D+.
Stage 3: Information for Further Research
| Graham Number | $46.23 |
| PEmg | 18.96 |
| PB Ratio | 1.84 |
| Dividend Yield | 0.00% |
| TTM Dividend | $0.00 |
| Number of Consecutive Years of Dividend Growth | 0 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 12/1/2018 |
| Long-Term Debt & Capital Lease Obligation | $1,409,000,000 |
| Total Assets | $65,003,000,000 |
| Intangible Assets | $2,976,000,000 |
| Total Liabilities | $58,441,000,000 |
| Shares Outstanding (Diluted Average) | 254,239,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $4.06 |
| Dec2017 | $2.15 |
| Dec2016 | $1.98 |
| Dec2015 | $0.91 |
| Dec2014 | $1.00 |
| Dec2013 | $0.29 |
| Dec2012 | -$0.39 |
| Dec2011 | $0.54 |
| Dec2010 | -$0.13 |
| Dec2009 | -$11.85 |
| Dec2008 | -$10.00 |
| Dec2007 | -$34.00 |
| Dec2006 | $14.40 |
| Dec2005 | $11.20 |
| Dec2004 | $9.90 |
| Dec2003 | $5.50 |
| Dec2002 | -$5.20 |
| Dec2001 | -$7.30 |
| Sep2000 | $0.60 |
| Sep1999 | -$2.10 |
| Sep1998 | -$0.10 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $2.51 |
| Dec2017 | $1.58 |
| Dec2016 | $1.12 |
| Dec2015 | $0.61 |
| Dec2014 | $0.40 |
| Dec2013 | -$0.71 |
| Dec2012 | -$2.26 |
| Dec2011 | -$5.82 |
| Dec2010 | -$8.78 |
| Dec2009 | -$10.75 |
| Dec2008 | -$7.37 |
| Dec2007 | -$3.57 |
| Dec2006 | $10.15 |
| Dec2005 | $6.29 |
| Dec2004 | $2.79 |
| Dec2003 | -$1.07 |
| Dec2002 | -$3.85 |
Recommended Reading:
Other ModernGraham posts about the company
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Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
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