|
Related Topics
|
Category: Stock Market and Charles Schwab
Date: 19 January 2020 Stock Price: $48.43 We take a look at the 4th 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.
|
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 4th quarter 2019 earnings report
The data below refers to the latest quarter unless specified otherwise
Clients’ Daily Average Trades (in thousands) for Charles Schwab
- Net revenues: $2606 billion (down from $2.669 billion for the same period of the previous year)
- Net sales decreased by 2% over the last 12 months
- Total Expenses excl interest: $1.494 billion (up from $1.459 billion for the same period of the previous year)
- Cost of sales increased by 2.4% over the last 12 months
- Net earnings: $801 million (down from $885 million for the same period of the previous year)
- Diluted earnings per share: $0.62 (down from $0.65 for the same period of the previous year)
- Diluted weighted-average shares outstanding: 1.293 billion (down from 1.354 billion for the same period of the previous year)
- Cash and cash equivalents: $29.3 billion
- Cash and cash equivalents per share: $22.66
- Cash and cash equivalents makes up 48.6% of Charles Schwab's market capital
- Cash and cash equivalents makes up 9.96% of Charles Schwab's total assets
- Stockholders equity in Charles Schwab : $21.7 billion
- Stockholders equity per share: $16.77
- So Charles Schwab is trading at 2.88times its stockholders equity which is within the expected range of between 2 and 4 which most firms tend to trade at.
Clients’ Daily Average Trades (in thousands) for Charles Schwab
- Revenue trades : 151 395 392 418 466
- Asset-based trades:38 123 138 149 188
- Other trades:496 200 186 210 213
Charles Schwab's management commentary on the results
SAN FRANCISCO, January 16, 2020 – The Charles Schwab Corporation announced today that its net income for the fourth quarter of 2019 was $852 million, down 9% from $935 million for the fourth quarter of 2018. Net income for the twelve months ended December 31, 2019 was a record $3.7 billion, up 6% year-over-year.
CEO Walt Bettinger said, “In 2019, we stayed true to our heritage of challenging the status quo to benefit individual investors and the independent advisors who serve them. Throughout the year, investor sentiment reflected a complex market environment that included ongoing global trade negotiations, the Brexit debate, and an uncertain economic outlook at home. The Federal Reserve reversed course on monetary policy, cutting the Fed Funds target three times in 2019, and the yield on 10-year Treasury notes hit a low of 1.47% before rebounding to average 2.14% for the year – leaving the rate environment significantly lower than our initial expectations. At the same time, stocks continued their steady march upward, with the S&P 500 rising 29% in the year to record levels. Both of our primary businesses contributed to core net new assets of $211.7 billion, which included record fourth quarter core net new assets of $66.2 billion and represented a 7% full-year organic growth rate, as well as our second consecutive year over $200 billion. Altogether, our robust asset gathering plus strong market returns drove total client assets to surpass the $4 trillion mark to a record $4.04 trillion at December 31st, closing the year up 24%.”
CEO Walt Bettinger said, “In 2019, we stayed true to our heritage of challenging the status quo to benefit individual investors and the independent advisors who serve them. Throughout the year, investor sentiment reflected a complex market environment that included ongoing global trade negotiations, the Brexit debate, and an uncertain economic outlook at home. The Federal Reserve reversed course on monetary policy, cutting the Fed Funds target three times in 2019, and the yield on 10-year Treasury notes hit a low of 1.47% before rebounding to average 2.14% for the year – leaving the rate environment significantly lower than our initial expectations. At the same time, stocks continued their steady march upward, with the S&P 500 rising 29% in the year to record levels. Both of our primary businesses contributed to core net new assets of $211.7 billion, which included record fourth quarter core net new assets of $66.2 billion and represented a 7% full-year organic growth rate, as well as our second consecutive year over $200 billion. Altogether, our robust asset gathering plus strong market returns drove total client assets to surpass the $4 trillion mark to a record $4.04 trillion at December 31st, closing the year up 24%.”
“During 2019 our commitment to seeing “through clients’ eyes” prompted us to take a number of bold steps that further enhance our offer to clients and help position Schwab to build value for our stakeholders – clients, employees, and stockholders – over the long-term,” Mr. Bettinger continued. “We shared the benefits of the scale we have worked so hard to achieve and removed the final barrier to investing by eliminating commissions for stocks, ETFs, and options listed on U.S. or Canadian exchanges, across all mobile and web trading channels. We also announced two significant acquisitions. In July, we agreed to acquire certain assets of USAA’s Investment Management Company while also entering into a longterm referral arrangement. We are honored to have the opportunity to serve the financial needs of USAA members and remain on track for closing in mid-2020. In late November, we entered into a definitive agreement to acquire TD Ameritrade. As we work towards a second half 2020 close and subsequent integration, our challenger mindset will guide us to ensure we leverage each organization’s strengths, including a common client-centric focus and a unique passion for breaking down barriers for investors and advisors alike.”
Mr. Bettinger concluded, “Last year we also focused on deepening our capabilities around innovative solutions and offering clients greater choice and value in meeting their investment needs. In the first quarter, we replaced Schwab Intelligent Advisory® with Schwab Intelligent Portfolios PremiumTM, the industry’s first subscription-based, automated investing solution with unlimited access to a planning professional. In December, we took action to meet the unfilled needs of millions of Americans by introducing Schwab Intelligent IncomeTM, a low-cost solution designed to offer a simple, modern way to generate income from existing investment portfolios. Additionally, in December, we lowered operating expense ratios on five fixed income ETFs, making each among the lowest OERs in their respective Morningstar categories. Last year also marked the 10th anniversary of our first proprietary ETF. Since that launch, we’ve added 24 more ETFs and $164 billion in assets. For our independent advisor clients, we are investing in a variety of technologies to best serve firms of all sizes and complexity. Since its April release, Schwab Advisor Portfolio Connect® – our modern portfolio management solution, available free of charge – has been delivering core capabilities and features to over 700 firms with an average AUM of $40 million. As part of our ongoing digital transformation work, we recently made enhancements to our status request experience including dynamic search functionality, more robust review capabilities, and increased flexibility to update pending requests. With these enhancements, status-related call volume has declined approximately 15% in our advisor business. Chuck Schwab, the Board, and I are all proud of the Schwab team’s many accomplishments in 2019 and we remain dedicated to helping investors reach their financial goals as we create an even stronger, more capable firm in the years ahead.”
CFO Peter Crawford commented, “We achieved impressive financial results in 2019 given the somewhat more challenging than expected macroeconomic backdrop and our own pricing decisions. We delivered a record $10.7 billion in total revenue, up 6% year-over-year, which was just shy of the range we outlined at the beginning of the year. Net interest revenue increased 12% from the prior year to $6.5 billion, driven by higher average investment yields – even after the Fed’s rate cuts – and an increase in client cash balances held at our bank and brokerage subsidiaries. While trading revenue declined 19% to $617 million due to our pricing actions, asset management and administration fees of $3.2 billion remained essentially flat year-over-year. Rising balances in third-party mutual funds, along with growing enrollment in our advisory solutions, helped to largely offset declines in Mutual Fund OneSource® and lower money market fund revenue due to sweep transfers to our balance sheet. In response to the environment, we carefully managed our overall 2019 spending to $5.9 billion for the year, including $62 million in severance charges associated with a 3% reduction in our workforce and $25 million in costs relating to our two aforementioned acquisitions. Together, these items contributed roughly a third of our 5% overall expense growth, and we finished the year significantly below our initial 6%-7% outlook. Reflecting our commitment to balancing long-term profitability with reinvesting for growth, we achieved a record 45.2% pre-tax profit margin and a 19% return on equity for the year – our second consecutive year of at least 45% and 19%, respectively.”
Mr. Crawford added, “Disciplined balance sheet management remains core to our strategy as we continue to support business growth and meaningful capital returns across a range of conditions. We entered 2019 with a $4 billion share repurchase authorization, and through year end we had repurchased more than 55 million shares for $2.2 billion including 6.4 million shares for approximately $230 million during the fourth quarter. By month-end December, our balance sheet assets reached $294 billion, up 5% from month-end September, and down 1% from a year ago; our preliminary consolidated Tier 1 Leverage Ratio was 7.3%. As we look forward to continuing to build Schwab both organically and through our pending transactions, our intent to return excess capital above our long-term operating objective of 6.75%-7.00% remains in place. Overall, our 2019 results emphasize the enduring nature of Schwab’s financial model, which allows us to consistently invest in our capabilities and our clients while building value for stockholders through the business cycle.”
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 $27.20 a stock and its currently trading at $48.34 a stock. That's a decent return of 77.3% 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 $51.64 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 discount bank and brokerage giant Charles Schwab (SCHW) - Get Report gained on Thursday, even as the company reported fourth-quarter earnings that were below analysts’ forecasts. Net income for the fourth quarter of 2019 was $852 million, or 62 cents a share, down from $965 million, or 65 cents, in the fourth quarter of 2018. Revenue came in at $2.61 billion, down from $2.67 billion in the year-earlier quarter.
Analysts polled by FactSet had expected per-share earnings of 64 cents on revenue of $2.63 billion. The results included an expense related to pending acquisitions of 1 cent a share. Schwab CEO Walt Bettinger pointed to a "complex trading environment" in 2019 that both encouraged – and discouraged – investor sentiment and corresponding trading activity, including the U.S.-China trade war, Brexit, rate cuts from the Federal Reserve and other events.
Read the full article here
Shares of discount bank and brokerage giant Charles Schwab (SCHW) - Get Report gained on Thursday, even as the company reported fourth-quarter earnings that were below analysts’ forecasts. Net income for the fourth quarter of 2019 was $852 million, or 62 cents a share, down from $965 million, or 65 cents, in the fourth quarter of 2018. Revenue came in at $2.61 billion, down from $2.67 billion in the year-earlier quarter.
Analysts polled by FactSet had expected per-share earnings of 64 cents on revenue of $2.63 billion. The results included an expense related to pending acquisitions of 1 cent a share. Schwab CEO Walt Bettinger pointed to a "complex trading environment" in 2019 that both encouraged – and discouraged – investor sentiment and corresponding trading activity, including the U.S.-China trade war, Brexit, rate cuts from the Federal Reserve and other events.
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 $42.70 a stock (down slightly from our 3rd quarter 2019 earnings valuation of Charles Schwab in which we valued the stock at $44.80). Therefore we believe that the stock of Charles Schwab is overvalued.
We usually recommend that long term fundamental or value investors look to enter the stock at 10% below our target (full value) price of $42.70, so a good entry point into Charles Schwab would be at $38.40 or below. We expect the stock of Charles Schwab to pull back from current levels to levels closer to our target price in coming weeks and months,
We usually recommend that long term fundamental or value investors look to enter the stock at 10% below our target (full value) price of $42.70, so a good entry point into Charles Schwab would be at $38.40 or below. We expect the stock of Charles Schwab to pull back from current levels to levels closer to our target price in coming weeks and months,
Next earnings release of Charles Schwab
It is expected that Charles Schwab's 1st quarter 2020 earnings will be released late April 2020.