Charles Schwab – opportunity knocks

18 March 2023

RatingPriceCatalystDate
 Buy$51.91Oversold18 March 2023

Key Metrics

P/EROEPrice target 
10x fwd earnings19%$80 

The most obvious opportunity to us today is Charles Schwab (SCHW) which fell ~11.55% today and as low as $45 per share intraday. Schwab makes money on the spread between the low rate it pays customers for cash they hold in their accounts and the rate it can earn investing that cash. Schwab’s earnings per share grew 20% last year, to $3.90. Schwab’s “money market” rate has crept up to ~4.48% – it isn’t earning as much of a spread but because its portfolio of fixed-interest rate securities is laddered its losses from low-yielding securities are quite low. The company has $36.6 billion of shareholder’s equity and a tier one leverage ratio of 7.2% (the regulatory minimum is 4%). As long as Schwab holds its lower-interest rate securities until maturity they should be fine and not incur a loss. Schwab’s core business – brokerage and wealth management – remains strong. Last year 4 million brokerage accounts were opened in the US. It trades at 10x fwd earnings, trades at ~$51.91 (down 36.75% YTD), and earns a very good 19% return on equity. Moreover, we think it has a strong franchise and a “wide moat”: it’s a chance to buy quality for less.  

Do You Want Daily Market Insights?

If you’re interested in staying up-to-date with the latest news and analysis on stocks, be sure to sign up to BlackBull Research.

1 Month Free Trial

Access our expert stock market research Free of charge with no obligation

Free 1 Month Free Trial

Unlock this article & access our expert stock market research

ASX, NZX & USD Stock Buy, Hold, Sell recommendations. Model Portfolios. Daily news and more

[pmpro_checkout]