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Charles Schwab Corp SCHW

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Morningstar’s Analysis

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Economic Moat




Record Client Assets Partially Offset Net Interest Headwinds at Schwab; TD Ameritrade Merger Closes

Michael Wong, CFA, CPA Sector Director

Analyst Note

| Michael Wong, CFA, CPA |

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.

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Company Profile

Business Description

Charles Schwab operates in the brokerage, banking, and asset-management businesses. The company runs a large network of brick-and-mortar brokerage branch offices and a well-established online investing website. It also operates a bank and a proprietary mutual fund business and offers services to independent investment advisors. The company is among the largest firms in the investment business, with over $4 trillion of client assets at the end of 2019. Nearly all of its revenue is from the United States.

211 Main Street
San Francisco, CA, 94105
T +1 415 667-7000
Sector Financial Services
Industry Capital Markets
Most Recent Earnings Jun 30, 2020
Fiscal Year End Dec 31, 2019
Stock Type High Yield
Employees 21,800