Is Charles Schwab Stock Fairly Priced?

Charles Schwab’s stock (NYSE: SCHW) has gained roughly 7% YTD as compared to the 7% drop in the S&P500 index over the same period. Further, at its current price of $90 per share, it is trading 10% below its fair value of $100 – Trefis’ estimate for Charles Schwab’s valuation. The company recently released its fourth-quarter results, missing the consensus estimates for revenues and earnings. It posted net revenues of $4.71 billion – up 13% y-o-y. This was because of an 18% growth in the net interest income (NII), followed by a 19% rise in trading revenues, and a 12% increase in asset management and administration fees. The NII benefited from growth in interest-earning assets, partially offset by a lower net interest margin. On a similar note, the trading revenues rose because of growth in active brokerage accounts, higher clients’ daily average trades, and an improvement in revenue per trade. Overall, the revenue growth coupled with lower total expenses as a % of revenues, translated into a 38% increase in the adjusted net income to $1.45 billion.

The company’s net revenues increased 58% y-o-y to $18.5 billion in 2021. This increase was partly due to the acquisition of TD Ameritrade which contributed total net revenues of $7.6 billion in 2021 and $1.7 billion in 2020 (Q4), and partly due to organic growth in the year. The NII grew 31% y-o-y, followed by a 23% rise in asset management & administration fees and close to a 2x jump in the trading revenues. Further, the bank deposit account fees improved from $355 million to $1.3 billion. Notably, the firm’s total client assets grew 22% y-o-y to around $8.1 trillion in 2021. All in all, the above growth in top-line and a favorable drop in total expenses as a % of net revenues from 63% to 58%, resulted in a 76% jump in the adjusted net income to $5.36 billion.

The anticipated increase in interest rates in FY2022 is likely to improve the net interest income of Charles Schwab. Further, the growth momentum in Assets under Management (AuM) is expected to continue in the year. That said, the trading revenues are likely to normalize with recovery in the economy. Overall, Charles Schwab revenues are expected to remain around $20.9 billion in FY2022. Additionally, SCHW’s adjusted net income margin is likely to improve in the year, leading to an adjusted net income of $7 billion and an annual EPS of $3.73. This coupled with a P/E multiple of just below 27x will lead to the valuation of $100.

Here you’ll find our previous coverage of Charles Schwab stock, where you can track our view over time.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

[1] Month-to-date and year-to-date as of 3/24/2022
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market Beating Portfolios

See all Trefis Price Estimates