The 4 Sources of Value for Schwab’s Stock

Charles Schwab Corporation (NYSE:SCHW) is anticipating a better than expected trading revenues for the year 2011, based on its findings from the Charles Schwab Active Trader Sentiment Survey. ^[1] Schwab engages in securities brokerage, banking, and related financial services through its subsidiaries that manage a combined $1.65 trillion in client assets. The company had 8.1 million active brokerage accounts, 1.4 million corporate retirement plan participants, and 719,000 banking accounts at the end of the Q1 2011. It competes with other online brokerage, banking and financial services firms like E-Trade (NASDAQ:ETFC), Ameritrade (NYSE:AMTD), Wells Fargo (NYSE:WFC) and Bank of America (NYSE:BAC).

Our price estimate for Charles Schwab is $19.64, implying a premium to market price.

With Schwab continuing to improve its services to online investors, this article is aimed at examining the 4 sources of income which contribute to its stock value

1) Interest on Deposits, Loans & Securities – represents 49% of the company’s stock value

Schwab earns interest on client assets that haven’t been invested by investing those assets in money market instruments. These are funded by investments from brokerage clients and banking clients, and the company in return pays interest. The net amount is the net interest revenue for Schwab.

See the top forecasts for interest on deposits, loans & securities

2) Mutual Fund and Other Investment Fees – 35%

Clients can invest money in Charles Schwab Proprietary funds, Schwab Fund and Laudus Fund or avail Charles Schwab OneSource Mutual Fund Services to invest in a select list of third party mutual funds. Schwab charges clients a fee on certain percentage of assets invested. Schwab also offers clearing services besides traditional investment management services.

See the top forecasts for mutual fund and other investment fees

3) Trading Commissions – 14%

Schwab allows individual investors the opportunity to use its internet portal to make trades and, in return, it charges its clients a commission per trade executed. Investors prefer an online brokerage that charges low commission and, at the same time, is secure and has an efficient transaction system

See the top forecasts for trading commissions

4) Maintenance Fees and Others  – 2%

These revenues includes realized gains and losses on sales of securities available for sale, service fees, and software maintenance fees.

See the top forecasts for maintenance & service fees and other

See our complete analysis for Charles Schwab Corporation’s stock

1. New Charles Schwab Survey Finds Most Active Traders Plan to Invest Tax Refunds, Schwab Press Releases, May 3 2010 [↩]