Charles Schwab Earnings: Positive Trends Are Continuing

Key Morningstar Metrics for Charles Schwab

• Fair Value Estimate: $87.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Charles Schwab’s Earnings

Key metrics for Charles Schwab SCHW continued to trend positively in the fourth quarter. The company reported net income to common shareholders of $1.7 billion, or $0.94 per diluted share, on $5.3 billion of net revenue. Net revenue increased 10% from the previous quarter and 20% from the previous year, with growth across all revenue lines. We don’t anticipate making a material change to our fair value estimate of $87 per share for Schwab, and we assess that the stock is fairly valued or slightly undervalued.

Schwab also laid out how its 2025 financials would look under a baseline scenario. The company believes revenue could increase 13%-15%, net interest margin for the year would be 2.55%-2.65% and end the year around 280 basis points, adjusted pre-tax margins could approach 50%, and adjusted earnings per share would be in the $4.10-$4.20 range. We believe the company’s scenario is reasonable, and it’s only a little above our base-case projections.

Interest-rate-related revenue remains a key driver of the company’s earnings. Continuing from the third quarter, low-cost sweep balances grew by $35 billion, and high-cost supplemental funding decreased by $14.9 billion to $49.9 billion. Consistently growing sweep balances is a key part of the company’s future earnings growth story, and it may be at the start of this trend. Management plans to continue to pay down its supplemental funding, and they mentioned that they believe the firm will make enough progress in this area in 2025, and that it will likely have enough liquidity and capital to commence some additional capital returns in 2025. We continue to believe in our investment thesis and project that earnings will increase by a double-digit percentage annually for the next several years.