Analyst Note| Michael Wong, CFA, CPA |
Wide-moat Charles Schwab reported a fairly strong finish to a tumultuous 2020, as it closed its merger with TD Ameritrade and equity markets continued to rally. Including the results of Charles Schwab’s merger with TD Ameritrade that closed in October 2020, net revenue for the fourth quarter increased 60% to $4.2 billion and net income to common shareholders increased 31% to $1.05 billion from a year ago. Taking into account the shares issued with the TD Ameritrade merger, GAAP earnings per share in the fourth quarter decreased 8% to $0.57, while adjusted earnings per share that excludes acquisition-related costs and acquired intangible amortization increased 17% to $0.74. Client assets ended the year at $6.7 trillion, up about 12% sequentially on a proforma basis. We anticipate that we may increase our current $47 fair value estimate for Charles Schwab upwards of 10% to account for the rally in equity markets over the past couple of months.