Balanced View on Schwab - Analyst Blog

On May 30, 2014, we issued an updated research report on The Charles Schwab Corporation SCHW. The company's better-than-expected results and increasing trading activities will continue to support its financials. However, sluggish economic recovery and a still low interest rate environment make us apprehensive.

Schwab reported first-quarter results on Apr 15. Earnings of 24 cents per share surpassed the Zacks Consensus Estimate by 9.1% on the back of increased revenues and almost stable operating expenses, partially offset by lower benefit from provisions.

Additionally, Schwab continues to grow in its trading business. The company's Daily Average Trades (DATs) are on the rise. This trend is expected to continue, unless the pace of economic recovery decelerates.

Further, following the earnings release, the Zacks Consensus Estimate over the last 60 days has been revised upward. For 2014, the Zacks Consensus Estimate climbed 2.1% to 97 cents per share, while for 2015 it rose 1.7% to $1.18 per share.

On the flip side, elevated operating expenses remain a major concern. Schwab continues to witness higher expenses resulting from rise in costs related to compliance and compensations.

Also, low rates have been a drag on the top line, forcing Schwab to waive the fees charged for managing funds. The company will face revenue pressure until improvement in the interest rates environment, which is not expected any time soon.

Presently, Schwab has a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Some better-ranked investment brokers include E*TRADE Financial Corporation ETFC, Interactive Brokers Group, Inc. IBKR and Piper Jaffray Companies PJC. All these stocks sport a Zacks Rank #1 (Strong Buy).