FBR Capital Reiterates an 'Outperform' on E*Trade Financial (ETFC); Lowers Estimates

October 28, 2009 7:28 AM EDT

FBR Capital reiterates an Outperform rating on E*Trade Financial (Nasdaq: ETFC), $2.25 price target.

FBR analyst says, "Admittedly, the company has many moving parts, but what is clear to us is the worst is behind the company and profitability should be within reach. Though the road to "normalized" earnings may take upward of three years, we believe ETFC offers significant upside potential for patient investors-particularly given the substantially lower risks to the company post-capital raise...In our view, ETFC has effectively cleared the danger zone and is no longer at risk of needing capital to support the business, although the company may choose to raise equity to accelerate the de-leveraging of its balance sheet. With provision and charge-offs declining 14% and 9%, respectively, along with the shrinking balance sheet, we believe the bank is now at the point of generating capital.

"To reflect better-than-anticipated 3Q09 results and our forecast for a slowing in the rate of credit improvement, we are lowering our estimate by $0.04 to ($0.46) for 2009 and by $0.04 to ($0.03) for 2010. Note, we expect the company to break even in 3Q10 and turn a profit in 4Q10...Our $2.25 price target is based on a $3 franchise value (a 15x P/E on $0.20 of normalized earnings) discounted back over three years plus approximately $0.10/share of present value related to the $1.6 billion deferred tax asset the company holds. Note that a more rapid return to profitability increases our franchise target value, as we believe it would increase the attractiveness of ETFC for acquirers."

To see more analyst ratings on ETFC Click Here.

E*TRADE Financial Corporation, through its subsidiaries, provides online brokerage and related products and services primarily to individual retail investors, under the brand name of E*TRADE Financial worldwide.

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