Will Charles Schwab’s Stock Recover To $40 Anytime Soon?

by Trefis Team
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Charles Schwab (NYSE: SCHW) stock dropped from about $34 on March 6th to $31 as of yesterday, March 24th, a 10% drop (vs. an 18% decline in the S&P 500 during the same period). The World Health Organization (WHO) had declared a global health emergency at the end of January in light of the coronavirus spread. SCHW stock has lost 32% from its $45 closing price on Friday, January 31st, to March 24th (vs. about 27% decline in the S&P 500).

We compare the performance of Charles Schwab against the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Charles Schwab Stock Fare Compared With S&P 500? Looking back at the 2008 financial crisis, we see SCHW stock declined from levels of around $20 in October 2007 (the pre-crisis peak) to levels of around $11 in March 2009 (as the markets bottomed out) – implying Schwab’s stock lost as much as 42% from its approximate pre-crisis peak. This marked a lower drop than the broader S&P, which fell by as much as 51%. However, Charles Schwab recovered strongly post the 2008 crisis, to levels of about $17 in early 2010, rising by 50% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period. Keeping this in mind, we believe that Schwab’s stock will gain 30% to scale the $40-level once efforts to contain the coronavirus outbreak globally bear fruit.

 

What Led To The Recent Decline in Schwab’s Stock?

Overall, there have been two distinct trends driving the recent sell-off. Firstly, the increasing number of Coronavirus cases outside China is causing mounting concerns of a global economic slowdown. Secondly, crude oil prices plummeted by more than 20% after Saudi Arabia increased production.

The effect was also evident in Charles Schwab’s stock, as it could suffer sizable losses due to a drop in asset valuations driven by net market losses. While the company has witnessed a spike in daily average trades since February (which implies higher trading activity in the stock market), the elimination of trading commissions late last year means that Schwab’s revenues aren’t going to benefit directly from this. Further, the brokerage giant generated around 91% of its revenues in 2019 from asset management fees and interest on deposits, loans & securities, which would be negatively impacted due to lower asset valuations. We believe Charles Schwab’s Q1 and Q2 results will confirm this reality with a drop in both asset management fees and Assets under Management (AuM).

If signs of coronavirus containment aren’t clear by the April Q1 earnings time-frame, its likely Charles Schwab’s stock along with the broader market is going to see a continued drop when results confirm palpable reality.

 

Will Charles Schwab stock recover from the coronavirus spread as it did after the Great Recession?

Potential for SCHW stock to bounce about 30% from its $31 price on March 24th to $40, and its timing, hinges on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyses expected recovery time-frames and possible spread.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. It complements our analyses of the coronavirus outbreak’s impact on a diverse set of Charles Schwab’s multinational peers, including Goldman Sachs and Morgan Stanley. The complete set of coronavirus impact and timing analyses is available here.

 

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