The Charles Schwab Corporation (SCHW) is a savings and loan holding company that offers wealth management, securities brokerage, banking, asset management, custody, and financial advisory services. The company operates through two segments: Investor Services and Advisor Services.

On October 16, the investment firm disclosed a blend of financial results for the third quarter of the year, navigating a demanding landscape marked by elevated interest rates and inflation. The firm posted an EPS of $0.77, surpassing the Wall Street analysts’ consensus forecast of $0.75.

For the July through September quarter, revenue totaled $4.61 billion, slightly below analyst projections of $4.65 billion. Notably, third-quarter revenue declined by 16.3% year-over-year. Additionally, the company reported a 23.5% decrease in net interest revenue, amounting to $2.24 billion. 

Moreover, revenue from trading activities fell by 17.4% to $768 million, falling short of the anticipated $804 million by analysts. The number of new brokerage accounts remained unchanged from the previous year but decreased by 7% compared to the second quarter of 2023.

Furthermore, the company has highlighted its ongoing struggle with the persistent challenges posed by soaring inflation and escalating interest rates, which are being employed to mitigate consumer price increases. Shares of SCHW have plummeted 36.7% year-to-date, closing the last trading session at $51.90.

Here are the financial aspects of SCHW’s that could influence its performance in the near term:

Disappointing Financials

During the third quarter that ended September 30, 2023, SCHW’s net revenues decreased 16.3% year-over-year to $4.61 billion. Its income before taxes on income declined 48.3% from the year-ago value to $1.38 billion. Also, the company’s adjusted net income and adjusted EPS declined 31.3% and 30% from the prior year’s period to $1.52 billion and $0.77, respectively.

Unfavorable Analyst Estimates

The consensus revenue estimate of $19.05 billion for the fiscal year ending December 2023 reflects an 8.2% year-over-year decline. Also, the consensus EPS estimate of $3.16 for the ongoing year indicates a 19% decrease from the previous year. Moreover, the company missed the consensus revenue estimates in three of four trailing quarters, which is disappointing.

Stretched Valuation

In terms of forward non-GAAP P/E, SCHW is trading at 16.40x, 86.3% higher than the industry average of 8.81x. Its forward Price/Sales of 4.96x is 127.4% higher than the 2.18x industry average. Also, the stock’s forward Price/Book of 3.21x compares with the 0.98x industry average.

Mixed Profitability

SCHW’s trailing-12-month gross profit margin of 96.84% is 62.6% higher than the industry average of 59.55%. Also, the stock’s trailing-12-month ROTA of 1.17% compares with the 1.16% industry average. However, its trailing-12-month asset turnover ratio of 0.04x is 82.7% lower than the industry average of 0.21x.

POWR Ratings

SCHW’s poor fundamentals are reflected in its POWR Ratings. The stock has an overall rating of D, which equates to Sell in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. SCHW has a D grade for Value, reflecting its higher-than-industry valuation. Moreover, it has a D grade for Sentiment, justified by its disappointing analyst outlook.

SCHW is ranked last in the 20-stock Investment Brokerage industry. Click here to access SCHW’s Growth, Momentum, Stability, and Quality ratings.

Bottom Line

The firm’s lower-than-expected earnings, declining revenues, and challenges in trading activities suggest potential drawbacks for investors. Additionally, inflation and rising interest rates continue to impact the company negatively. Coupled with high valuation and inconsistent profitability, SCHW could be best avoided now.

How Does The Charles Schwab Corporation (SCHW) Stack Up Against Its Peers?

While SCHW has an overall grade of D, equating to a Sell rating, you may also check out these B-rated stocks within the Insurance – Brokers industry: Marsh & McLennan Companies, Inc. (MMC) and AXA SA (AXAHY). For exploring more Insurance – Brokers stocks, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

SCHW shares were trading at $51.01 per share on Friday morning, down $0.89 (-1.71%). Year-to-date, SCHW has declined -37.98%, versus a 11.69% rise in the benchmark S&P 500 index during the same period.

About the Author: Aanchal Sugandh

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns. More...

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