Barclays Sees Schawb As Best Positioned In Rising Rate Environment, Expects Trading Volumes For Brokers To Grow Steadily

• The share price of Charles Schwab Corp SCHW has appreciated 17.11 percent over the past three months, crossing the $34 mark on Debember 4.
• Barclays’ Kenneth Hill has maintained an Overweight rating on the company, while raising the price target from $36 to $38.
• Hill expects the company to perform the best among its eBroker peers in a rising rate environment, while also driving earnings via balance sheet growth.

Analyst Kenneth Hill explained that price action in the eBroker segment “has been heavily influenced by rate expectations over the past few years,” while expecting to enter 2016 with the first hike for the year already under way.

“Moving forward, we anticipate a steady move higher in short-term rates, somewhere between what we see as conservative investor expectations and our bullish house view,” Hill stated.

Although the initial rate increase period is expected to be smooth, without any meaningful increase in volatility, Hill noted that there could be an increase in volatility as 2016 progresses.

According to the Barclays report, “[T]he first 100bps rise in Fed Funds will add roughly 60bps of incremental NIM improvement and completely remove MMF fee waivers.”

The report also recommends that investors stay long heading into the first hike in rates, with Charles Schwab expected to generate strong organic growth going forward.

The 2016 EPS estimate has, however, been reduced from $1.48 to $1.46, based on the outlook for the year.