Kerry Peacock, who sits on the Board of Directors at TD Ameritrade Holding Corp. (NYSE:AMTD), directly bought 3,500 shares on January 24th at an average price of $19.08 per share. These are Peacock’s first direct holdings of TD Ameritrade stock, but she joined the Board in July 2012 and we think that is a long enough lag to make this move a legitimate insider purchase rather than a “courtesy purchase” as might happen with a new Board member. She is an officer at Toronto-Dominion Bank (NYSE:TD), which is a major shareholder in TD Ameritrade. Insider purchases can be bullish signals for a company’s stock since they represent enough confidence in higher stock prices to overcome the benefits of diversification (learn more about studies on insider trading).
TD Ameritrade Holding Corp.’s business remained steady in quarter ending December 2012 (the first of its fiscal year), with minimal changes in revenue and earnings from their levels a year earlier. A slight decrease in commissions and transactions revenue was offset by more asset-based revenues. Top and bottom lines were also more or less unchanged compared to the quarter ending in September. The stock does trades at 18 times trailing earnings, so the market is pricing in expectations of at least some growth in the coming years. Analyst expectations imply a current-year P/E of 18 as well. This is a bit concerning to us; while TD Ameritrade’s business does appear very stable, we’d generally want to see a lower earnings multiple for us to consider such a company a good value.
Billionaire Steve Cohen’s SAC Capital Advisors moved heavily into TD Ameritrade Holding Corp. during the third quarter of 2012, building what had been a very small position for the fund up to 3.7 million shares by the end of September (see more of Cohen’s stock picks). Millennium Management, which is managed by billionaire Israel Englander, also increased its stake substantially during the quarter (find Englander’s favorite stocks). Chuck Akre’s Akre Capital Management was another hedge fund holder of the stock, with 3.2 million shares in its portfolio (check out more stocks Akre Capital Management owned).
How does TD Ameritrade compare to its peers?
TD Ameritrade’s peers include Charles Schwab Corp (NYSE:SCHW), E TRADE Financial Corporation (NASDAQ:ETFC), LPL Financial Holdings Inc (NASDAQ:LPLA), and ING Groep N.V. (NYSE:ING). Charles Schwab is valued at a moderate premium to TD Ameritrade, with a trailing P/E multiple of 23. However, that company did experience revenue and earnings growth- with net income actually up over 20%- last quarter versus a year ago. We would be interested in learning why Charles Schwab is outperforming its peer; if the reasons are sustainable, it might be a “growth at a reasonable price” stock. The flashier E Trade has dipped into the red the past couple of quarters, but Wall Street analysts expect it to recover: the current-year P/E is 20 and the five-year PEG ratio is 0.7 as consensus is for good earnings numbers. We wouldn’t consider E Trade until the company had reported profitability for a quarter or two.
LPL, like TD Ameritrade, has been reporting stable numbers though that stock is also valued at a premium: it trades at 23 times trailing earnings. Expectations are high here as well but we think that we would avoid the stock. ING’s earnings multiples- trailing, and consensus for 2013- are only 6, and the PEG ratio is quite low here as well. This is partly because business has been doing poorly; revenue, for example, fell 24% in its most recent quarterly report compared to the same period in 2011. Still, it is cheap enough at first glance that it might be worth a closer look.
TD Ameritrade and many of its peers don’t appear to be particularly attractive investments. In particular, we would like to see better growth numbers at the earnings multiple the company is currently valued at. Charles Schwab and ING might be worth further research.
Disclosure: I own no shares of any stocks mentioned in this article.
