You are working on a project to value an independent securities brokerage firm. You know the industry had a significant decline in valuations during the 2007−2009 financial crisis. You decide to perform a time series analysis on three firms: E*TRADE Financial Corp. (NASDAQ: ETFC), The Charles Schwab Corporation (NASDAQ: SCHW), and TD Ameritrade Holding Corp. (NYSE: AMTD). Exhibit 12 presents information on these firms.

Based only on the information in Exhibit 12, discuss the relative valuation of ETFC relative to the other two companies.

Transcribed Image Text:

EXHIBIT 12 Price-to-Book Comparables Price-to Book Value Ratio As of 19 July Entity 2006 2007 ETFC 2.37 2008 2009 2.38 0.68 0.88 0.84 0.74 0.54 Forecasted growth in book value: 1.5% 2010 2011 2012 2013 Mean 0.65 1.14 Forecasted growth in revenues: -1.0% Beta: 1.65 SCHW 4.23 6.69 6.14 3.54 Forecasted growth in book value: 10.5% 3.15 2.50 1.96 2.31 3.81 Forecasted growth in revenues: 5.0% Beta: 1.20 AMTD 6.96 4.85 3.33 2.60 2.68 2.44 2.20 2.53 3.45 Forecasted growth in book value: 9.0% Forecasted growth in revenues: 3.5% Beta: 1.10