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Category: Stock Market and Charles Schwab
Date: 17 October 2019 Stock Price: $39.02 We take a look at the 3rd quarter earnings report of their 2019 fiscal year of Charles Schwab a provider of financial services with more than 12.1 million active brokerage accounts.
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About Charles Schwab
The Charles Schwab Corporation (NYSE: SCHW) is a leading provider of financial services, with more than 365 offices and 12.0 million active brokerage accounts, 1.7 million corporate retirement plan participants, 1.3 million banking accounts, and $3.70 trillion in client assets as of June 30, 2019. Through its operating subsidiaries, the company provides a full range of wealth management, securities brokerage, banking, asset management, custody, and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary,
Charles Schwab & Co., Inc. (member SIPC, https://www.sipc.org ), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through Schwab Advisor Services. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and lending services and products.
Charles Schwab & Co., Inc. (member SIPC, https://www.sipc.org ), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through Schwab Advisor Services. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and lending services and products.
Overview of Charles Schwab's latest earnings report
The numbers we are interested in (for first two quarters of 2019):
- Net sales: $2.711 billion (up from $2.579 billion for the same period of the previous year)
- Net sales increased by 5.21% over the last 12 months
- Total Expenses: $1.475 billion (up from $1.360 billion for the same period of the previous year)
- Cost of sales increased by 8.45% over the last 12 months
- Net earnings: $951 million (up from $923 million for the same period of the previous year)
- Diluted earnings per share: $0.70 (up from $0.65 for the same period of the previous year)
- Diluted weighted-average shares outstanding: 1.308 billion (down from 1.364 billion for the same period of the previous year)
- Cash and cash equivalents: $20.3 billion
- Cash and cash equivalents per share: $15.52
- Cash and cash equivalents makes up 39.7% of Charles Schwab's market capital
- Cash and cash equivalents makes up 7.27% of Charles Schwab's total assets
- Stockholders equity in Charles Schwab : $21.4 billion
- Stockholders equity per share: $16.36
- So Charles Schwab is trading at 2.38 times its stockholders equity which is within the expected range of between 2 and 4 which most firms tend to trade at.
Charles Schwab's management commentary on the results
CEO Walt Bettinger said, “As we remain faithful to our “Through Clients’ Eyes” strategy, investors continue to reward us with strong business growth. Our contemporary full-service model helps us remain a trusted partner as clients navigate an environment that has only grown more cloudy in recent months. The equity markets have shown noteworthy durability – the S&P 500 remained up nearly 20% for the year as of quarter-end. Concerns persist, however, regarding global trade and a generally softening economic outlook.
The Federal Reserve has moved forward with expected midcycle easing, cutting short-term interest rates 25 bps in both July and September, and long-term rates have also shown significant declines. Against this backdrop, clients brought us $56.6 billion in core net new assets, a third quarter record, which brings our year-to-date total to $145.5 billion, representing a 6% annualized organic growth rate. In addition, we attracted 363,000 new brokerage accounts in the quarter, helping raise active brokerage accounts to 12.1 million, up 6% year-over-year. Client demand for help and guidance continued to grow, with assets receiving ongoing advisory services reaching nearly $2.0 trillion at quarter end, up 7%. Assets in digital advisory solutions grew even faster, rising 20% to $43.0 billion at the end of September. Overall, our client assets totaled a record $3.77 trillion at quarter end, up 6%.” “Our commitment to challenge the status quo and disrupt the industry on behalf of clients endures through all environments,”
Mr. Bettinger added. “Most recently, we eliminated online trade commissions for stocks, ETFs, and options listed on U.S. or Canadian exchanges, a move that represents another significant investment in bringing ever greater value to our clients. This action is consistent with the principles on which our company was founded, helping realize Chuck Schwab’s vision of making investing accessible to all. We also continue to extend our products and platforms, including the recent launch of three new fixed-income ETFs. In support of our independent advisors, we’ve made enhancements to Institutional Intelligent Portfolios® including a paperless account conversion feature making it simpler than ever to incorporate automated investing into their practices, while freeing up time to spend with investors and scale their businesses. Additionally, on July 25th, we announced an agreement to acquire certain assets of USAA’s Investment Management Company, with closing targeted for the middle of next year. We are honored to have the opportunity to serve USAA members as their exclusive wealth management and brokerage provider, and are looking forward to exploring a new growth opportunity via the multi-year referral agreement included in this transaction.”
Mr. Bettinger concluded, “Schwab’s ‘Virtuous Cycle’ is renewed by bold steps like our recent price cuts, reflecting our belief that investors will entrust us with more business as we do right by them. We are acting from a position of strength – both financial and competitive – which allows us to take these steps with confidence, knowing we are able to push forward as we choose, not as the current environment might dictate.”
CFO Peter Crawford commented, “Our continued success with clients and full-service model enabled us to deliver third quarter revenues of $2.7 billion, up 5% year-over-year. Net interest revenue rose 7% from a year ago to $1.6 billion, largely a result of generally higher investment yields and higher client cash allocations. Growing client balances in purchased money market funds, advisory solutions, and other third-party mutual funds and ETFs pushed asset management and administration fees to $825 million, increasing 2% year-over-year. A pick-up in trading volumes was more than offset by a decline in average revenue per trade, bringing trading revenue to $172 million, down 2% from a year ago. Turning to expenses, our reported total of $1.5 billion includes $62 million in severance charges associated with our decision to eliminate positions spanning approximately 3% of our workforce, as we work to ensure we remain properly positioned to serve clients through what has become a more challenging environment. These charges contributed roughly half of our 8% year-over-year expense growth. Ongoing expenses remained in line with management expectations and we were able to report a pre-tax profit margin of 45.6% – our sixth consecutive quarter of at least 45%.”
Mr. Crawford added, “Consistent with the evolution of the Schwab story to include both business growth and meaningful capital returns, we repurchased 19.9 million shares for approximately $770 million during the third quarter. We have repurchased more than 49 million shares for $2 billion under our current $4 billion authorization. Our expanding client base and related increases in their cash balances drove modest organic growth in our balance sheet during the third quarter, with consolidated assets increasing $2.7 billion sequentially to $279 billion at September 30th. Our preliminary Tier 1 Leverage Ratio ended the quarter at 7.3%, slightly above our operating objective of 6.75%-7.00%; our capital management in coming quarters will incorporate preparations for the $1.8 billion USAA transaction next year. With a 20% return on equity for the quarter and year-to-date, we remain well-positioned to drive strong profitable growth into the future through a combination of sustained business momentum, thoughtful expense management, and a healthy balance sheet.”
The Federal Reserve has moved forward with expected midcycle easing, cutting short-term interest rates 25 bps in both July and September, and long-term rates have also shown significant declines. Against this backdrop, clients brought us $56.6 billion in core net new assets, a third quarter record, which brings our year-to-date total to $145.5 billion, representing a 6% annualized organic growth rate. In addition, we attracted 363,000 new brokerage accounts in the quarter, helping raise active brokerage accounts to 12.1 million, up 6% year-over-year. Client demand for help and guidance continued to grow, with assets receiving ongoing advisory services reaching nearly $2.0 trillion at quarter end, up 7%. Assets in digital advisory solutions grew even faster, rising 20% to $43.0 billion at the end of September. Overall, our client assets totaled a record $3.77 trillion at quarter end, up 6%.” “Our commitment to challenge the status quo and disrupt the industry on behalf of clients endures through all environments,”
Mr. Bettinger added. “Most recently, we eliminated online trade commissions for stocks, ETFs, and options listed on U.S. or Canadian exchanges, a move that represents another significant investment in bringing ever greater value to our clients. This action is consistent with the principles on which our company was founded, helping realize Chuck Schwab’s vision of making investing accessible to all. We also continue to extend our products and platforms, including the recent launch of three new fixed-income ETFs. In support of our independent advisors, we’ve made enhancements to Institutional Intelligent Portfolios® including a paperless account conversion feature making it simpler than ever to incorporate automated investing into their practices, while freeing up time to spend with investors and scale their businesses. Additionally, on July 25th, we announced an agreement to acquire certain assets of USAA’s Investment Management Company, with closing targeted for the middle of next year. We are honored to have the opportunity to serve USAA members as their exclusive wealth management and brokerage provider, and are looking forward to exploring a new growth opportunity via the multi-year referral agreement included in this transaction.”
Mr. Bettinger concluded, “Schwab’s ‘Virtuous Cycle’ is renewed by bold steps like our recent price cuts, reflecting our belief that investors will entrust us with more business as we do right by them. We are acting from a position of strength – both financial and competitive – which allows us to take these steps with confidence, knowing we are able to push forward as we choose, not as the current environment might dictate.”
CFO Peter Crawford commented, “Our continued success with clients and full-service model enabled us to deliver third quarter revenues of $2.7 billion, up 5% year-over-year. Net interest revenue rose 7% from a year ago to $1.6 billion, largely a result of generally higher investment yields and higher client cash allocations. Growing client balances in purchased money market funds, advisory solutions, and other third-party mutual funds and ETFs pushed asset management and administration fees to $825 million, increasing 2% year-over-year. A pick-up in trading volumes was more than offset by a decline in average revenue per trade, bringing trading revenue to $172 million, down 2% from a year ago. Turning to expenses, our reported total of $1.5 billion includes $62 million in severance charges associated with our decision to eliminate positions spanning approximately 3% of our workforce, as we work to ensure we remain properly positioned to serve clients through what has become a more challenging environment. These charges contributed roughly half of our 8% year-over-year expense growth. Ongoing expenses remained in line with management expectations and we were able to report a pre-tax profit margin of 45.6% – our sixth consecutive quarter of at least 45%.”
Mr. Crawford added, “Consistent with the evolution of the Schwab story to include both business growth and meaningful capital returns, we repurchased 19.9 million shares for approximately $770 million during the third quarter. We have repurchased more than 49 million shares for $2 billion under our current $4 billion authorization. Our expanding client base and related increases in their cash balances drove modest organic growth in our balance sheet during the third quarter, with consolidated assets increasing $2.7 billion sequentially to $279 billion at September 30th. Our preliminary Tier 1 Leverage Ratio ended the quarter at 7.3%, slightly above our operating objective of 6.75%-7.00%; our capital management in coming quarters will incorporate preparations for the $1.8 billion USAA transaction next year. With a 20% return on equity for the quarter and year-to-date, we remain well-positioned to drive strong profitable growth into the future through a combination of sustained business momentum, thoughtful expense management, and a healthy balance sheet.”
Charles Schwab (NYSE: SCHW) stock price history
The image below, obtained from Google, shows the stock price history of Charles Schwab over the last 5 years. And it's been a good time for Charles Schwab stockholders. 5 years ago the stock was trading at around $25.90 a stock and its currently trading at $39.02 a stock. That's a decent return of 50.6% provided to Charles Schwab stockholders over the last 5 years. The stock of Charles Schwab is trading at a lot closer to its 52 week low of $34.58 than it is 52 week high of $49.24 which to us is a clear indication that short term sentiment and momentum of Charles Schwab stock is negative.
Recent coverage of Charles Schwab
The extract below covers some of the latest news regarding Charles Schwab as obtained from TheStreet.com
Shares of Charles Schwab (SCHW - Get Report) jumped Tuesday after the brokerage and financial services giant unveiled better-than-expected quarterly numbers. The stock rose 3.95% to $39.21 after the company reported third quarter earnings per share of 70 cents. That was up 8% from the same quarter last year and 4 cents above the consensus estimate of analysts surveyed by Zacks Investment Research.
Revenue rose 5% to $2.7 billion, beating the $2.6 billion estimate of analysts polled by Zacks. Charles Schwab reported a 3% rise in net income to $951 million, up from $923 million during the same quarter a year ago. The results may help ease investor anxiety over the firm's high-stakes decision to zero out commission for online trades, though the actual impact of the move, which kicked off in early October, won't be tallied until the numbers for the fourth quarter come out early next year.
Read the full article here
Shares of Charles Schwab (SCHW - Get Report) jumped Tuesday after the brokerage and financial services giant unveiled better-than-expected quarterly numbers. The stock rose 3.95% to $39.21 after the company reported third quarter earnings per share of 70 cents. That was up 8% from the same quarter last year and 4 cents above the consensus estimate of analysts surveyed by Zacks Investment Research.
Revenue rose 5% to $2.7 billion, beating the $2.6 billion estimate of analysts polled by Zacks. Charles Schwab reported a 3% rise in net income to $951 million, up from $923 million during the same quarter a year ago. The results may help ease investor anxiety over the firm's high-stakes decision to zero out commission for online trades, though the actual impact of the move, which kicked off in early October, won't be tallied until the numbers for the fourth quarter come out early next year.
Read the full article here
Charles Schwab (NYSE: SCHW) latest stock valuation
So what is Charles Schwab stock worth based on the release of their latest earnings report? Based on Charles Schwab's latest earnings report our valuation models provide a target (full value) price of Charles Schwab stock at $44.80 a stock (up from our 2nd quarter 2019 earnings valuation of Charles Schwab in which we valued the stock at $42.20). Therefore we believe that the stock of Charles Schwab is undervalued.
We usually recommend that long term fundamental or value investors look to enter the stock at 10% below our target (full value) price of $4.80, so a good entry point into Charles Schwab would be at $40.30 or below. Since the stock of Charles Schwab is below our suggested entry point of $40.30 we therefore rate the stock of Charles Schwab as a buy
We usually recommend that long term fundamental or value investors look to enter the stock at 10% below our target (full value) price of $4.80, so a good entry point into Charles Schwab would be at $40.30 or below. Since the stock of Charles Schwab is below our suggested entry point of $40.30 we therefore rate the stock of Charles Schwab as a buy
Next earnings release of Charles Schwab
It is expected that Charles Schwab's 4th quarter 2019 earnings will be released late January 2020.