This site requires a more recent version of Adobe Flash Player to function properly.
Go here to get Flash.
Trefis's graphical modelling tools require Flash, but here's a preview of some of the content you'll see once
Flash is enabled:
Investment Overview for Charles Schwab (NYSE:SCHW)
Below are key drivers of Schwab's value that present opportunities for upside or downside to the current Trefis price estimate:
Interest on Deposits, Loans & Securities
- Net Interest Income Rate on Deposits, Loans and Securities Analysis: Schwab's structure ties its income to market interest rates. The interest income rate on deposits, loans and securities was at 4.61% in 2007 and continued to decline until 2013 - in step with the market. Interest rates in 2013 was as low as 1.51%. In 2014, interest rates picked up slightly to 1.64%, stagnating around similar levels in 2015, and increasing to 1.73% due to the Fed's rate hikes in 2015 and 2016 end. We forecast this yield to reach around 4% by the end of the Trefis forecast period.
- Interest Earning Deposits, Loans and Securities : Schwab's interest earning assets have been growing significantly in the last few years, reaching over $190 billion in 2016, having almost doubled since 2012. We currently forecast these assets to grow steadily through the end of the Trefis forecast period, eventually approaching $385 billion.
Charles Schwab is an online brokerage firm that allows clients to buy and trade equities, options and other securities in the market. Charles Schwab also offers money management services to its clients. Schwab charges clients a certain percentage of assets invested as fee. Clients can invest money in Charles Schwab Proprietary Funds, Schwab Fund and Laudus Fund or use Charles Schwab OneSource Mutual Fund Services to invest in a select list of third-party mutual funds.
While revenues from trading commissions have continued to decreased over the years, interest income on deposits, loans & securities has increased since 2010, on the back of substantially higher interest earning assets, which almost tripled from 2010.
We expect that net interest income continue its solid growth over the Trefis forecast period on the back of continued growth in interest earning assets and interest rates hikes in the future.
Higher net interest yield going forward
Charles Schwab earns interest on client assets awaiting investment by placing those assets into money market instruments. Schwab's investments are basically funded by brokerage and banking clients, and Charles Schwab in return pays interest to the clients. The net amount is the net interest revenue for Schwab.
Charles Schwab earns about 1.73% net interest yield on nearly $190 billion of client assets. We expect Schwab's net interest yield to increase to nearly 4% over our forecast period as a macroeconomic recovery leads to a broader increase in interest rates.
Asset management becoming increasingly valuable
Asset and investment management is becoming of growing part of the brokerage. However, competition in asset management is also growing to due the prevalence of low cost ETFs that serve as an alternative to managed investment funds and digital advisory.
Low mutual fund fees
Clients can invest money in Charles Schwab's proprietary funds, Schwab Fund and Laudus Fund, or use Charles Schwab OneSource Mutual Fund Services to invest in a select list of third party mutual funds. Schwab earns a management fee for these services.
Schwab manages close to $1.9 trillion in proprietary and mutual fund assets. Although Schwab's assets under management are much higher than the client assets on which it earns a net interest spread, Schwab earns a fee of only 0.25% of managed assets which is low compared to the yield the company has traditionally earned on client assets. As a result of this difference, net interest on deposits, loans and securities is a more valuable business for Schwab than mutual fund & investment fees.
Declining trading commissions
With over 10.1 million brokerage accounts, Schwab is one of the leading online brokerage firms. Schwab's revenue per trade has been declining in recent years and stood at about $11.26 per trade in 2016. With stiff competition in the market and a lot of brokerage firms offering free trades, we forecast the commissions to decline in the near term.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
View All Help Topics