Charles Schwab Stock Is Undervalued

SCHW: Charles Schwab logo
Charles Schwab

Charles Schwab stock (NYSE: SCHW) has lost 38% YTD as compared to the 7% rise in the S&P500 index over the same period. The recent stock volatility was due to the fear of a banking crisis after the collapse of Silicon Valley Bank (SVB). That said, at its current price of $52 per share, it is trading 29% below its fair value of $73 – Trefis’ estimate for Charles Schwab’s valuation

The company missed the street expectations in the fourth quarter of 2022, despite a 17% y-o-y increase in the net revenues to $5.5 billion. The revenues were up due to a 41% growth in the net interest income (NII), partially offset by a 12% drop in the trading revenues and a 5% decrease in the asset management & administration fees. Overall, the adjusted net income increased 26% y-o-y to $1.82 billion.

The firm posted total revenues of $20.76 billion in FY2022 – up 12% y-o-y. It was because of a 33% increase in the net interest income, partially offset by a 12% decline in trading revenues. On the cost front, total expenses as a % of revenues decreased from 58% to 55%, resulting in a 24% growth in the adjusted net income to $6.64 billion.

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Moving forward, consensus estimates for Q1 2023 revenues and earnings are $5.16 billion and $0.91 respectively. Overall, Charles Schwab’s revenues are estimated to remain around $21.5 billion in FY2023. Additionally, SCHW’s adjusted net income margin is likely to improve from 32% to around 33.6%, resulting in an annual EPS of $3.88. This coupled with a P/E multiple of just below 19x will lead to a valuation of $73.

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 Returns Apr 2023
MTD [1]
YTD [1]
Total [2]
 SCHW Return -1% -38% 32%
 S&P 500 Return 0% 7% 83%
 Trefis Multi-Strategy Portfolio 0% 8% 239%

[1] Month-to-date and year-to-date as of 4/13/2023
[2] Cumulative total returns since the end of 2016

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