On Mar 6, 2014, we issued an updated research report on The Charles Schwab Corporation SCHW. Diversified revenues of the company remained strong, which is further expected to grow on the back of efforts to improve the same.
Schwab continues to benefit from aggressive efforts toward increasing client base in advisory solutions. The advice solution fees have grown at a 4-year CAGR of 17.2% (2011–2014). Additionally, the company continues to gain from its trading business, driven by steady improvement in equity markets.
In 2013, trading revenues increased 5% year over year with the trend continuing in the first half of 2014 as well. However, overall low client activity in the second half of 2014 led to a marginal decline in trading revenues for 2014. Nonetheless, we believe that the positive trend of the past will sustain and trading revenues will rebound, backed by continued economic recovery and enhanced client confidence.
On the flip side, mounting operating expenses and a low-rate environment remain major near-term concerns for Schwab. The company continues to face higher expenses resulting from a rise in costs related to compliance and compensations. Moreover, low rates have been a drag on the top line, forcing Schwab to waive its fund-management fees.
Analysts have expressed a mixed forecast on the stock. Hence, over the last 30 days, the Zacks Consensus Estimate for 2015 remained stable at $1.10 per share; while for 2016, the same inched up nearly 1% to $1.56 per share.
Currently, Schwab carries a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Some better-ranked investment brokers include Cowen Group, Inc. COWN, JMP Group LLC JMP and GAIN Capital Holdings, Inc. GCAP. While both Cowen Group and JMP Group sport a Zacks Rank #1 (Strong Buy), GAIN Capital holds a Zacks Rank #2 (Buy).
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