Charles Schwab Stock Is Up 8% YTD, Where Is It Headed?

Charles Schwab stock (NYSE: SCHW) has gained 8% YTD as compared to the 12% rise in the S&P500 index over the same period. In sharp contrast, Charles Schwab’s peer Goldman Sachs (NYSE: GS) is up 20% since the beginning of 2024. Overall, at its current price of $74 per share, SCHW is trading 5% below its fair value of $78 – Trefis’ estimate for Charles Schwab’s valuation. 

Amid the current financial backdrop, SCHW stock has shown strong gains of 35% from levels of $55 in early January 2021 to around $75 now, vs. an increase of about 45% for the S&P 500 over this roughly 3-year period. However, the increase in SCHW stock has been far from consistent. Returns for the stock were 59% in 2021, -1% in 2022, and -17% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that SCHW underperformed the S&P in 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including JPM, V, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could SCHW face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

The company outperformed the street estimates for earnings in the first quarter of 2024, while revenues were in line with the expectations. It reported net revenues of $4.74 billion – down 7% y-o-y, primarily driven by a 19% drop in the net interest income (NII) and an 8% decline in the trading revenues. The NII suffered due to a 13% decrease in the total interest-earning assets and lower net interest margin. That said, the top line was somewhat supported by a 21% increase in the asset management & administration fees and higher bank deposit account fees. On the cost front, the expenses as a % of revenues increased in the quarter. Overall, the adjusted net income decreased by 18% y-o-y to $1.25 billion.

The net revenues were $18.84 billion in FY 2023 – down 9% from the year ago period. It was mainly due to a 12% drop in the net interest income, a similar decrease in the trading revenues, and a 50% decline in the bank deposit account fees. However, the negative impact was partially offset by a 13% gain in the asset management and administration fees. In terms of expenses, total noninterest expenses increased 10% over the same period. Altogether, the adjusted net income was down 30% y-o-y to $4.65 billion.

Moving forward, we expect the same trend to continue in Q2. Overall, Charles Schwab’s revenues are estimated to remain around $19.66 billion in FY2024. Additionally, SCHW’s adjusted net income margin is likely to improve in the year, resulting in an annual GAAP EPS of $3.32. This coupled with a P/E multiple of just below 24x will lead to a valuation of $78.

[1] Returns as of 6/7/2024
[2] Cumulative total returns since the end of 2016

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