Charles Schwab Corp SCHW

Record client assets offset net interest income pressure at wide-moat Charles Schwab during the third quarter, while realization of synergies from the TD Ameritrade transaction will bolster earnings in the medium term. Schwab reported net income to common shareholders of $615 million, or $0.48 per diluted share, on $2.45 billion of net revenue during the quarter. On an adjusted basis, which excludes acquisition costs and amortization of acquired intangibles, the company reported pro forma diluted earnings per share of $0.51. Net revenue was flat sequentially and 10% lower on a year-over-year basis. Almost all of the year-over-year decline was due to lower net interest income, while the firm benefited sequentially from higher asset-management fees (as client assets hit a record $4.4 trillion), helping offset declines in net interest income and trading revenue. We don’t anticipate making a material change to our $45.50 fair value estimate for the combined company (the Schwab-Ameritrade deal closed Oct. 6), and we assess the shares as undervalued at today's prices.