E-Trade Financial Corp., which took a black eye from losses on its subprime mortgage holdings, is getting back on track by focusing on its roots as an online brokerage, an analyst said Monday.

Keefe, Bruyette & Woods analyst Joel Jeffrey started coverage of E-Trade with a "Market Perform" rating and a 12-month price target of $1.70.

Jeffrey cited E-Trade's improving loan portfolio. He also believes that the New York company's online brokerage business will be enough to support operations or attract a buyer.

"The firm is returning to its brokerage-centric business model and appears to be on the path to recovery," the analyst said in a research note.

However, Jeffrey said there are still drags on the business from E-Trade's banking operations. As such, Jeffrey told investors to expect only limited earnings-per-share increases in the near future.

E-Trade shares slid a penny to $1.55 in afternoon trading.