TD Ameritrade Holding Corp. (AMTD) reported strong earnings on Tuesday after the bell. With record client assets, a huge jump in earnings and a record of sales growth, I think AMTD is a great stock to have in the portfolio.
Shares were up 1% to $55.50 as of 5:20 p.m. ET.
The beauty of an online brokerage like this is they make money even when there's big downside movements in the market. As long as trading volume goes up, they'll bring in revenue. As more and more people get it in their heads that they can manage their own money (for better or worse), or realize the savings potential of a discount online broker, I think these brokerages will continue to succeed. The integration of the company's merger with Scottrade has only helped AMTD leverage its size within the industry.
The company reported a record $32 billion in client assets being serviced. Revenues for the fiscal first quarter of 2019 increased 21% to $1.5 billion. Average trades per day increased a whopping 28% in the quarter to 928,000. I think this is directly related to the market downturn that occurred in December; making my case that for better or worse, brokerage stocks can offer potential in both good and bad markets. If anything, they fare a little weaker in boring markets.
More appealing than even the revenue growth, is the 106% increase in earnings per diluted share to $1.07. Net income increased over 100% to $604 million. Quarter to quarter, net income increased 33%. Of course the addition of the Scottrade business has certainly helped in growing the size and scalability of their business model, and I think it can continue moving forward.
Looking into 2019, I think TD Ameritrade will continue posting big earnings numbers. There's a lot of volatility in the markets right now. With all of the geopolitical, economic, and general anxiety facing the stock market these days, I think we'll see some more big swings. To that end, we'll see a lot of trades being placed.
The one critique I could make of AMTD right now, as a balance of opinion, is their debt levels have gone up. Long term debt increased 37% between September 30 and December 31. A total of $3.48 billion is a lot of debt, but the generally strengthening nature of the balance sheet alleviate my concerns. The company reported $5.12 billion in cash/equivalents at the end of the fiscal first quarter. Quarter to quarter, stockholders equity increased 4.4% to $8.36 billion. As long as the company can manage its debts in a way that doesn't hamper total equity quality, I think it will be OK.
Accounts continue to grow, while overall shares have declined. That's a nice recipe for higher earnings per share. At the end of December, the brokerage had 18 million shares under its repurchase plan that still need bought. That's a little over 3% of diluted shares outstanding.
Overall, I like the business a lot. As long as client assets continue to rise, I think the growth story remains steady. Having beaten estimates of around $1.01, AMTD seems to have a head start on meeting full year forecasts of $3.92, all while trading under 15x those full-year earnings estimates. Couple in a 2% dividend, and I think AMTD stock seems primed to do well.