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$13.12 0.77 (6.23%)
10/10/2008 4:00 PM

TD AMERITRADE Holding Corp. (AMTD)

CAPS Rating:
***

The Company is a provider of securities brokerage services, with retail brokerage representing the vast majority of its business.

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Avatar NetscribeFinServ (< 20) Submitted: 2/14/07 4:41 AM : Outperform Start Price: $17.00 AMTD Score: 16.06

TD Ameritrade with its dynamic pool of products and services offerings helps in meeting the investment spirit of independent individual investors. More focus is on the long-term investor base rather than the traditional model depending on transactions. Of late, the electronic brokerage industry has become very competitive characterized by consolidation and new players with lower price points continue to enter market. However the value proposition of it has been excellent to bear the price competition, undeterred even by the free trade offer of Bank of America.

Ameritrade acquisition of TD Waterhouse has helped it create a diversified business proposition apart from the cost and revenue synergies. With this, only 40% of its revenues come from brokerage commissions and fees making it less vulnerable to the fluctuating trading revenues. It has also helped it double its asset-backed revenues. This leaves room to purse the strategies followed by its competitor of attracting a low cost, loyal deposit base and strong loan portfolio with its strong banking network.

The company sees huge potential from the mass affluent U.S population, which has more than $1 million as investible assets. The market for the same is about 37 million household with a capacity of about $14 trillion. The areas of concern are the performance in time of slow down in capital market and huge debt it has taken to finance the merger. However good cash flows and its interest coverage ratio above 9 makes its financial position strong.

A new revenue category money market deposit account (MMDA) has resulted from the agreement with TD Bank providing additional earnings with more stability. TD Ameritrade enjoys significant operating leverage, which helps in easy scalability, reducing per trade operating expenses. This would even help reach an operating margin of 50% from the current level of 36% once the merger synergies are fully captured. Acquisitions and migration of investors to online trading has placed TD Ameritrade in an advantageous position and is a promising stock to own.

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Avatar NetscribeFinServ (< 20) Submitted: 4/20/07 6:04 AM

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The strategy of the company has been two fold with aim of growing its online brokerage business and diversifying into asset based business such as money markets, margin loans and stock lending. Endorsing the same its purchase of TD Waterhouse in 2006 has helped it achieve the shift in revenue mix it wanted, generating only 40% of its revenues from brokerage commission and fees and rest from the new ventures. The business model of the company presents huge operating leverage that can been exploited with scalability. Operating metrics are high and attractive and would benefit more once the merger synergies are fully absorbed. It can also exploit its established strong banking relationship to mop up low cost deposits that has helped its principal competitors E Trade and Charles Schwab.

The client segmentation strategy is on a roll targeting mainly women. Apart from this they have engaged Suze Orman, author of a book “Women and Money” who has recommended TD Ameritrade as the brokerage firm of choice for all in her book. The investment centers that had been operating out of the Beverly Hills, Orlando and New York has been restructured under the new name “New Guidance Solutions team” who could focus more on sales and service.

The company has a busy share buyback ahead for the year and has been authorized by the board for an additional 20 million shares. Moreover it has huge earnings potential of which 90% has been used for share buyback in the previous quarter. Financial health looks good despite the debt it had to carry to finance the merger due to its interest coverage ratio being above 9. Summarizing the above-mentioned facts the stock looks a promising pick for 2007

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