Is Charles Schwab Stock Fairly Priced?

+13.87%
Upside
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Trefis
SCHW: Charles Schwab logo
SCHW
Charles Schwab

Charles Schwab stock (NYSE: SCHW) has lost 2% YTD as compared to the 19% drop in the S&P500 index over the same period. Further, at its current price of $83 per share, it is trading 10% below its fair value of $92 – Trefis’ estimate for Charles Schwab’s valuationThe company surpassed the street expectations in the third quarter of 2022, with net revenues increasing 20% y-o-y to $5.5 billion. It was mainly driven by a 44% y-o-y rise in the net interest income (NII), followed by a 28% growth in the bank deposit account fees. The NII primarily benefited from improvement in interest rates. On the flip side, the asset management and administration fees decreased by 5% y-o-y, and trading revenues declined by 4%. Notably, the asset management fees suffered due to lower equity market valuations. Altogether, adjusted net income rose by 34% y-o-y to $1.88 billion.

The company’s top line grew 11% y-o-y to $15.3 billion in the first three quarters of 2022. It was because of a 30% increase in the net interest income and a 5% growth in the bank deposit & account fees, partially offset by an 11% decline in trading revenues. On the cost front, total expenses as a % of revenues decreased, leading to a 23% growth in the adjusted net income to $4.8 billion.

Moving forward, we expect the same trend to continue in Q4. Overall, Charles Schwab’s revenues are estimated to remain around $20.8 billion in FY2022. Additionally, SCHW’s adjusted net income margin is likely to improve from 28.9% to around 36%, resulting in an annual EPS of $3.92. This coupled with a P/E multiple of just above 23x will lead to a valuation of $92.

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  6. Is Charles Schwab Stock Fairly Priced?

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 Returns Dec 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 SCHW Return 0% -2% 109%
 S&P 500 Return -6% -19% 72%
 Trefis Multi-Strategy Portfolio -5% -22% 215%

[1] Month-to-date and year-to-date as of 12/30/2022
[2] Cumulative total returns since the end of 2016

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