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No. of Recommendations: 2
E*Trade Could Be an Interesting Speculative Play

It’s been a busy week for E*TRADE (ETFC) Financial. E*TRADE’s shares rose 7% to $1.62 Tuesday on news of a debt upgrade by Standard & Poors. This is one day after shares were down big after the company introduced its new CEO and announced a 1 for 10 reverse stock split.


E*TRADE has been a rumored takeover target for the past 2 years despite denials from other brokerage firms. While the company’s brokerage accounts would be attractive to another broker/dealer; E*TRADE’s balance sheet has a few issues. E*TRADE has twice as much debt as cash and a negative ROE. Even though the company has a market cap of $3.1 billion, the enterprise value is $9.55 billion. Revenue and profitability are continuing to decline. On the plus side, E*TRADE is trading below book value and below cash per share.

For investors looking for a speculative buy, E*TRADE looks like an interesting play. The upside could be significant if the brokerage is taken over and the downside appears limited.
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