On Heels Of Q2 Earnings Release, E*Trade Downgraded By Goldman

E*TRADE Financial Corp ETFC reported its Q2 results, with the EPS meaningfully beating the estimate.

Goldman Sachs’ Conor Fitzgerald downgraded the rating on the company from Buy to Neutral, with a price target of $26.

Removing the stock from Goldman Sachs’ Americas Buy List, Fitzgerald mentioned that E*TRADE Financial has surged 55 percent since being added to the Buy List, as compared to the 31 percent rise in the S&P.

Q2 Earnings

Regarding the Q2 results, the analyst mentioned that earnings were strong, “and showed strong cost discipline in a quarter where revenue outperformed.”

However, Fitzgerald also cautioned that the decision to cross the $50 billion asset threshold would increase regulatory risks, while driving only modest EPS accretion.

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Earnings Potential

“Given planned balance sheet growth and that tier 1 leverage at the parent is now ETFC’s binding capital constraint, we expect the pace of buybacks to roughly halve going forward, thereby removing a catalyst,” Fitzgerald pointed out.

In addition, the analyst noted that several of the company’s restructuring and capital return catalysts have been executed upon over the past 18 months, and E*TRADE Financial’s earnings power was no longer understated.

“Given the challenged yield environment, and lost money market and FDIC fees, we see the returns from crossing $50bn as middling against allocated capital,” the analyst added.

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