Charles Schwab stock (NYSE: SCHW) has lost 39% YTD as compared to the 11% rise in the S&P500 index over the same period. Further, at its current price of $51 per share, it is trading 30% below its fair value of $73 – Trefis’ estimate for Charles Schwab’s valuation.
Interestingly, Charles Schwab stock had a Sharpe Ratio of 0.2 since early 2017, which is lower than 0.6 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.21 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
The company surpassed the consensus expectations in the second quarter of 2023, despite a 9% y-o-y drop in the net revenues to $4.66 billion. The revenues were down due to a 10% decline in the net interest income (NII), a 50% decrease in the bank deposit account fees, and a 9% drop in the trading revenues. However, the negative impact was somewhat offset by a 12% rise in asset management and administration fees. On the cost front, the expenses as a % of revenues increased in the quarter. Overall, the adjusted net income declined by 29% y-o-y to $1.17 billion.
The net revenues for the first half of FY 2023 were $9.77 billion – at par with the year-ago period. While the net interest income increased by 7% y-o-y and asset management and administration fees improved by 8%, it was offset by a significant drop in bank deposit and account fees and lower trading revenues. In terms of expenses, total noninterest expenses increased 6% over the same period. Altogether, the adjusted net income decreased 8% y-o-y to $2.7 billion.
Moving forward, consensus estimates for Q3 2023 revenues and earnings are $4.68 billion and $0.76, respectively. Overall, Charles Schwab’s revenues are forecast to remain around $19.3 billion in FY2023. Additionally, SCHW’s adjusted net income margin is likely to see a slight drop in the year, resulting in an annual GAAP EPS of $3.22. This coupled with a P/E multiple of just below 23x will lead to a valuation of $73.
|S&P 500 Return||-1%||11%||90%|
|Trefis Reinforced Value Portfolio||-3%||19%||513%|
 Month-to-date and year-to-date as of 10/6/2023
 Cumulative total returns since the end of 2016