Quick Look at TD Ameritrade February Metrics

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Tuesday morning, TD Ameritrade reported February metrics. Two months into the quarter, trading is pacing meaningfully ahead of our model while fee- and spreadbased assets are generally pacing a bit light versus our model. Trading was particularly strong, with record-high DARTs of 501,000. IDA balances currently lag our model, which we attribute primarily to investors continuing to be more engaged and holding smaller cash balances.

Fee-based balances were also light, but they represent a relatively small portion of the company’s revenues. The stock trades at 22.6 times our fiscal 2014 (ending September 30) adjusted EPS estimate and 19.9 times fiscal 2015, excluding amortization of acquired intangibles. TD Ameritrade remains a favorite name for 2014 based on market volatility driving better trading, significant interest rate upside down the road, and a roughly 3% dividend yield when factoring in a likely special dividend toward the end of the year. We reiterate our Outperform rating.

February DARTs (daily average revenue trades) totaled 501,000 (up 30% yearover- year and up 1% from January), representing the second consecutive month of record-high DARTs for TD Ameritrade. The quarter-to-date average of 498,500 is about 9.6% above our 455,100 estimate for the quarter. If this level of trading were to continue for the rest of the quarter, we estimate it would generate about $0.03 of upside to our March-quarter EPS estimate of $0.31.

Total client assets of $612 billion as of February 28 (up 22% year-over-year and up 4% from January) compares with our $614 billion estimate for March 31. Month-to-date, the S&P 500 is up 1%.

Average February spread-based balances of $91.7 billion (up 12% year-overyear and flat versus January) compare with our $93.4 billion estimate for the full quarter. While interest-earning balances are pacing in line with our estimate, IDA balances are trending below, likely because investors are more engaged and holding smaller cash balances. We note that TD Ameritrade’s Investor Movement Index (IMX), which tracks retail investor sentiment, increased for the fifth month in a row and achieved another record-high level in February; the quarter-to-date average is up about 6% versus calendar fourth quarter’s average. We also note that preliminary data from the Investment Company Institute shows long-term fund flows of roughly $57.5 billion for the first two months of the quarter; at the same time, both retail and institutional money market fund assets saw close to a 1.5% decline during this period, suggesting they were in outflow mode.

The average IDA balance (this is the account at TD Bank which TD Ameritrade sweeps most of its client cash into) in February was $73.1 billion, down 1% from January. For the first two months of the quarter, the average IDA balance was $73.4 billion versus our $74.9 billion estimate for the full quarter.

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