Credit Suisse: TD Ameritrade's Stock Is Cheap

TD Ameritrade Holding Corp. (NASDAQ: AMTD) earnings are on the rise, and one Wall Street analyst says the stock’s valuation relative to peers is extraordinarily low.

The Analyst

Credit Suisse analyst Craig Siegenthaler upgraded TD Ameritrade from Underperform to Neutral and raised his price target from $58 to $63.

The Thesis

Siegenthaler now has a more optimistic outlook for TD Ameritrade earnings and has upped his 2019/2020 non-GAAP EPS estimates for the stock from $3.79/$4.09 to $3.88/$4.38. Siegenthaler expects growth to accelerate in 2019 and operating margins to fall in the 51 percent to 52 percent range next year.

“We now estimate AMTD's relative valuation can start to improve again if its organic growth rate re-accelerates (especially with a larger contribution from the higher ROCA retail channel),” Siegenthaler said in a note.

Despite the fact that TD Ameritrade shares are up 18 percent year-to-date, Siegenthaler said the stock is trading at an extreme relative valuation discount to Charles Schwab Corporation (NYSE: SCHW). In addition, TD Ameritrade's stock is trading in-line with the valuation of E*TRADE Financial Corp (NASDAQ: ETFC) despite TDA’s much better growth outlook.

Siegenthaler said TD Ameritrade also looks relatively cheap compared to the rest of the market as well, trading at a 10 percent earnings multiple discount to the S&P 500 compared to its historical 20 percent premium.

Price Action

TD Ameritrade traded higher by 1 percent around $60.18 on Wednesday following the upgrade.

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