Credit Suisse Reinstates E*TRADE (ETFC) at Outperform
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Credit Suisse reinstates coverage on E*TRADE (NASDAQ: ETFC) with a Outperform rating and a price target of $33.00 (from $30.00), saying shareholders will be best served by making the right strategic acquisition versus being acquired itself.
Analyst Christian Bolu commented, "The E*Trade story is at another critical inflexion point–-the lack of core business growth resulted in the ouster of the CEO last week; the new management team has effectively been set an implicit target of 2-3% incremental business growth or "we’ll consider that this company is better in other people’s hand in terms of shareholder value". We take a closer look at three strategic options for the company–1) drive growth organically 2) drive growth via a scale or capabilities acquisition and 3) sell the company. We conclude shareholder value is best served by driving growth via the right strategic acquisition."
Further the analyst said a takeout by TD Ameritrade/Charles Schwab is feasible but not without challenges. "The lack of a robust strategic rationale for TD Ameritrade/Charles Schwab to take-out E*Trade coupled with significant revenue dis-synergies (mainly from loss of high margin net interest income) means that a financially rationale takeout price for E*Trade would offer little to no premium to current prices–-a scenario we doubt would be acceptable to E*trade shareholders," the analyst commented. "We define financially rationale as a deal where ROIC is above the buyers cost of capital."
The firm is raising 2018 estimate to $1.90 (from $1.80) to account for the OptionsHouse acquisition.
Shares of E*TRADE closed at $28.19 yesterday.
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