What To Expect From Charles Schwab Stock?

SCHW: Charles Schwab logo
Charles Schwab

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.

Relevant Articles
  1. Charles Schwab Stock Is Up 8% YTD, Where Is It Headed?
  2. Charles Schwab Stock To Top The Consensus In Q3
  3. Charles Schwab Stock To Post Mixed Result In Q2
  4. Charles Schwab Stock Has An 84% Upside Potential To Its Pre-Inflation Peak
  5. Charles Schwab Stock Is Undervalued
  6. What To Expect From Charles Schwab Stock In Q4?

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.

 Returns Oct 2023
MTD [1]
YTD [1]
Total [2]
 SCHW Return -7% -39% 29%
 S&P 500 Return -1% 11% 90%
 Trefis Reinforced Value Portfolio -3% 19% 513%

[1] Month-to-date and year-to-date as of 10/6/2023
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates