On Dec 1, 2014, we issued an updated research report on The Charles Schwab Corporation (SCHW). Diversified revenue streams remain a major strength for the company, which is further expected to grow on its efforts to improve the same.
Schwab continues to gain from its trading business, driven by a steady improvement in equity markets. In 2013, trading revenues increased 5% year over year. However, low client activity led to a marginal decline in trading revenues for the nine months ended Sep 30, 2014. We believe that trading revenues would rebound, with an improvement in trading activity and re-engagement of clients.
Further, management’s aggressive efforts to enhance the client base in advisory solutions are bearing fruits. The advisory solution fees have grown at a 3-year CAGR of 17.3% (2011-2013), with the trend continuing in the first nine months of 2014 as well. Despite sluggish economic growth, Schwab’s cash holdings declined to pre-crisis levels, implying strong involvement of clients.
However, elevated operating expenses and a low-rate environment remain major concerns for Schwab. The company continues to witness higher expenses resulting from a rise in costs related to compliance and compensations. Also, low rates have been a drag on the top line, compelling Schwab to waive its fund-management fees.
Notably, analysts have expressed a mixed forecast on the stock. Hence, over the last 30 days, the Zacks Consensus Estimate for 2014 remained stable at 95 cents per share, while for 2015, the same inched down nearly 1% to $1.15 per share.
Presently, Schwab has a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Some better-ranked investment brokers include Evercore Partners Inc. (EVR), GAIN Capital Holdings, Inc. (GCAP) and Raymond James Financial, Inc. (RJF). All these stocks sport a Zacks Rank #2 (Buy).
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