Balanced View on Schwab - Analyst Blog

On Mar 5, 2014, we issued an updated research report on The Charles Schwab Corporation SCHW. The company reported better-than-expected fourth-quarter results. The growth in top line amid an overall sluggish economic recovery was impressive. Lower provision was another positive for the quarterly.

On Jan 16, Schwab reported fourth-quarter 2013 results. Adjusted earnings not only surpassed the Zacks Consensus Estimate but also increased 53% on a year-over-year basis.

Schwab has been putting considerable effort to become less dependent on interest rates and this has borne fruit, as evident from its top-line growth. Moreover, the company launched several programs to provide enhanced services to customers. These initiatives are expected to drive revenues in the upcoming quarters.

Moreover, with the overall improvement in equity markets, Schwab's trading business will likely witness further growth. Diversified revenue streams as well as meaningful acquisitions will also continue to benefit the company.  

The Zacks Consensus Estimate for 2014 increased 4.4% to 95 cents per share over the last 60 days. Moreover, for 2015, the Zacks Consensus Estimate advanced 3.6% to $1.15 per share over the same time period.

However, we remain skeptical about Schwab's significant dependence on fee-based revenue streams. The company's primary revenue drivers have been facing headwinds over the past few quarters. Moreover, rising expenses and persistently low interest rates will continue to weigh on Schwab's financials.

Currently, Schwab has a Zacks Rank #2 (Buy).

Stocks That Warrant a Look

Some better-ranked investment brokers include E*TRADE Financial Corporation ETFC, GAIN Capital Holdings, Inc. GCAP and Investment Technology Group Inc. ITG. All these stocks have a Zacks Rank #1 (Strong Buy).