Goldman (NYSE:GS) Looks at AMERITRADE (Nasdaq:AMTD), E*TRADE (Nasdaq:ETFC), TradeStation Group (Nasdaq:TRAD), Schwab (Nasdaq:SCHW), Xpress Holdings (Nasdaq:OXPS)

Goldman Sachs (NYSE:GS) gave an update on discount brokers and investment banks today, covering a plethora of companies, including AMERITRADE (Nasdaq:AMTD), E*TRADE (Nasdaq:ETFC), TradeStation Group (Nasdaq:TRAD), Schwab (Nasdaq:SCHW), Xpress Holdings (Nasdaq:OXPS) for discount brokers, and Duff & Phelps (NYSE:DUF), Evercore Partners (NYSE:EVR), Greenhill & Co (NYSE:GHL), Lazard (NYSE:LAZ), Jefferies (NYSE:JEF), Piper Jaffray (NYSE:PJC), Raymond James (NYSE:RJF), Morgan Stanley (NYSE:MS), LPL Investment (Nasdaq:LPLA) and Stifel Nicolaus (NYSE:SF) for investment firms.

Overall Goldman believes there is a healthy outlook for the industry, although noting tailwinds could affect some of them.

Goldman noted, "Despite tailwinds, valuations appear full - The brokerage group looks poised to have a robust 2011, with our 2011 estimates implying 48% yoy EPS growth, led by boutique M&A firms EVR and GHL, as well as by PJC (given exposure to ECM issuance). Improving GDP growth (GS Global ECS Research estimates +3.4% in 2011) and higher equity markets should also lift retail-sensitive names such as SF and LPL, but sector valuations look full at 119% of 5-year average forward P/E.

"4Q10 may be tough, but 2011-12 look better - With the notable exception of LAZ, we lower our 4Q10 estimates for the Smid-cap Brokers due to muted trading activity levels and challenging muni market conditions. That said, we raise our 2011-12 estimates to reflect the favorable environment for M&A and ECM activity in 2011. We also raise our price targets for the group by an average of 11%, which are now based on our 2011 EPS targets or 4Q11 tangible book value estimates for the investment banks (JEF, MS, PJC, RJF, and SF)."

For Discount Brokers:

Goldman raises its price target on AMERITRADE (AMTD) (Buy) from $20 to $23, E*TRADE (ETFC) (Neutral) from $17 to $18, TradeStation Group (TRAD) (Neutral) from $6 to $7 and Schwab (SCHW) (Neutral) from $17 to $19. But, Goldman lowers options Xpress Holdings (OXPS) (Sell) from $16 to $15.

For Investment Firms:

Goldman raises its price target on Duff & Phelps (DUF) (Neutral) from $13 to $16, Evercore Partners (EVR) (Buy) from $35 to $41, Greenhill & Co (GHL) (Neutral) from $72 to $82, Lazard (LAZ) (Neutral) from $42 to $46, Jefferies (JEF) (Sell) from $23 to $24, Piper Jaffray (PJC) (Neutral) from $32 to $40, Raymond James (RJF) (Neutral) from $31 to $36, and Stifel Nicolaus (SF) (Buy) from $65 to $73.

Goldman maintains a Neutral rating on Morgan Stanley (MS) and $30 price target. LPL Investment (LPLA) stays a 'Buy' and $40 price target.

E*TRADE (Nasdaq:ETFC), AMERITRADE (Nasdaq:AMTD), Charles Schwab (Nasdaq:SCHW) Improving with E-Broker Sector

The overall e-broker sector has been improving, and E*TRADE (Nasdaq:ETFC), AMERITRADE (Nasdaq:AMTD) and Charles Schwab (Nasdaq:SCHW) all looking to improve in various degrees in 2011.

Barclays (NYSE:BCS) commented on the sector saying, "November was an incrementally positive month for the e-brokers, in our view, as retail trading volumes continue to outpace broader exchange volumes and net inflows appear to remain healthy into the end of the year...."

For the three companies they noted, "... with rising delinquencies in certain slices of ETFC's 1-4 family and HELOC loan portfolios, the incremental credit costs to support these delinquencies more than offset the positives seen in ETFC's core e-broker, resulting in a downward revision for ETFC's 4Q10 EPS from $0.06 to $0.03 (incl. a $0.04 tax true-up benefit)."

"AMERITRADE: While our quarterly and annual estimates for AMTD have not changed (f1Q11 remains $0.25 vs. the Street consensus of $0.24), we have made some modest adjustments to some individual assumptions and revenue lines, slightly lowering our DARTs forecast and average IDA balance, offset by a small upward revision to fee-based asset balances and quarter-end customer assets. (PT increased by $1 to $20)"

"Charles Schwab: Following the better-than-expected trading volumes and equity market rally positively influencing commissions and asset management fees, respectively, we are raising SCHW's 4Q10 EPS estimate from $0.17 to $0.18. Due to the incrementally more challenging interest rate environment persisting for the duration of the quarter, we continue to expect $110mm of money market fee waivers in 4Q10, up notably vs. the $93mm in 3Q10. (PT increased by $1 to $17)"

E*TRADE closed Thursday at $15.10, up $0.06, or 0.40 percent. TD Ameritrade closed at $18.86, up $0.32, or 1.73 percent. Charles Schwab closed the session at $17.00, up $0.21, or 1.25 percent.

TD Ameritrade (Nasdaq:AMTD), Charles Schwab (Nasdaq:SCHW), TradeStation (Nasdaq:TRAD) Preferred by FBR Capital

Looking into investment services for 2011, FBR Capital said they prefer online brokers such as TD Ameritrade (Nasdaq:AMTD), Charles Schwab (Nasdaq:SCHW) and TradeStation (Nasdaq:TRAD) over asset managers.

FBR also noted that even in the asset management segment there will be an increasing transfer of assets away from bonds to equities.

FBR said, "As we look toward 2011, our outlook for investment services, including asset managers and online brokers, remains challenged. We expect macroeconomic factors, such as unemployment and further consumer de-leveraging, to sustain headwinds that may keep investors from reengaging fully in the equity markets, which could dampen inflows into mutual funds and client trading activity. At the same time, our expectations of continued low interest rates will likely mean more money market fee waivers for asset managers and spread compression for the online brokers. As such, we still favor asset managers that are more weighted toward fixed income, such as Franklin Resources, Inc. (NYSE: BEN)(Outperform), versus equity managers—at least heading into the early part of 2011. Overall, however, we favor online brokers over asset managers. What happens to interest rates will define much of the stock performance for this group in 2011. As macro conditions improve, we believe investors will move first toward online brokers, such as TD Ameritrade Holding Corporation (Outperform), Charles Schwab Corporation (Market Perform), and TradeStation Group, Inc. (Market Perform), in anticipation of the earnings leverage created by rising rates in those models. While asset managers outperformed online brokers during the last rising rate environment, rates are starting at much lower levels today, and as a result, there is more net interest margin (NIM) expansion to unleash this time around. At the same time, investors will likely shift out of fixed-income trades among the asset managers and into those with higher equity exposure, such as Janus Capital Group Inc. (NYSE:JNS)(Market Perform); Waddell & Reed Financial, Inc. (NYSE:WDR)(Market Perform); and T. Rowe Price Group, Inc. (Nasdaq:TROW)(Outperform). Absent such a recovering macro and rate environment, we believe consolidation among the online brokers will begin to occur, providing another reason to favor the group."

TD Ameritrade was trading at $18.50, up $0.01, or 0.03 percent, as of 2:14 PM EST. Charles Schwab was trading at $16.61, $0.20, or 1.19 percent. TradeStation was trading at $6.55, up $0.06, or 0.92 percent.