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Ameritrade and E*Trade gain on upgrades

2 min read

Online brokers were getting a bounce from bullish coverage Wednesday. Ameritrade Holding Corp. (Nasdaq: AMTD) was up 2.38 to 21, or 13 percent, and E*Trade (Nasdaq: EGRP) was up 1.88 to 19.94, or 10 percent.

CIBC World Markets' analyst Steven Eisman raised Ameritrade to "buy" from "hold" with a price target of $25. The stock has swung up on buyout speculation recently, and tumbled with the departure of the company's CEO.

UBS Warburg initiated coverage on Ameritrade at a slightly less enthusiastic "hold."

Credit Suisse First Boston analyst James Marks upgraded Ameritrade and E*Trade to "buy" from "hold," and put a 12-month target of $35 on both stocks.

"With the exception of only eBay, E-Trade and the online brokers have the best consumer-facing business models on the Web," Marks stated in a report. He said the company is now creating tremendous value for shareholders with each dollar it spends on marketing, and is showing little impact from traditional brokers. Marks also said conditions are in place for trading volumes to start rebounding.

For E*Trade, Marks sees fiscal 2000 per share loss at 11 cents, and fiscal 2001 earnings at 13 cents a share.

"Investor interest in brokerage stocks from an M&A angle could and should spill over to the online offerings, with E-Trade being the highest-profile target," Marks said. He called the stock "a very attractive opportunity" at current valuations.

Catalysts for Ameritrade stock include "consolidation and recovering volumes," and Marks said Ameritrade "could attract attention as a potential target in today's hot brokerage M&A market. It should also benefit as trading volumes recover following the summer lull period."

He projected fiscal 2000 loss at 9 cents per share, and fiscal 2001 earnings at 86 cents a share.

"At current valuations, we believe it now represents a very attractive opportunity...the best chance since the fall of 1998 for investors to participate profitably through Ameritrade in the changes the Internet is bringing to the financial services industry."

Reuters contributed to this report.