Goldman Sachs Downgrades TD Ameritrade, But Notes 'Lots Of Earnings Per Share Upside'

In a report published Friday, Goldman Sachs analyst Alexander Blostein downgraded shares of TD Ameritrade Holding Corp. (NYSE: AMTD) to Neutral from Buy despite "lots of earnings per share upside."

Blostein noted that shares of TD Ameritrade are trading near his $38 per share price target. At the same time, retail trading activity is trending "a bit softer," with a negative mix shift away from higher-commission options.

"We continue to view TD Ameritrade as a secular asset gathering story (10 percent plus organic growth rate) within wealth management space, with lots of EPS upside in a higher rate environment and a more flexible capital structure versus its closest peers," Blostein wrote.

"That said, with the stock now trading at 23x Next Twelve Months P/E, we estimate almost 150-200 basis points of interest rate upside is already reflected in the valuation, while the firm's near-term EPS backdrop is tracking modestly softer than expected."

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The analyst continued that the company's Daily Average Revenue Trades (DARTs) are down 3 percent year over year while Charles Schwab's trends suggest DARTs in March would be down another 6 percent.

Moreover, industry-wide options trading is down 12 percent year over year, which could weigh on the company's commission revenue given it is a higher fee business.

Bottom line: Blostein stated that he remains "constructive" on the long-term prospects for TD Ameritrade, but sees "limited absolute" upside over the next six to 12 months.