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Schwab Focuses on Growing Trading Income, Expenses Increase

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The Charles Schwab Corporation’s (SCHW - Free Report) efforts to strengthen trading income and higher interest rates position it well for growth. However, mounting expenses remain a key concern.

Schwab is focused on augmenting trading revenues. For this, it announced several initiatives including lowering basic online equity and ETF trade commissions and reducing fees for the Schwab market cap-weighted index mutual funds. While the initiatives are expected to hurt revenues in the near term, these are aimed at building client base and improving the company’s trading income.

Apart from this, management’s aggressive efforts to expand client base in advisory solutions have been fruitful. Advice solution revenues have been rising for the last several years. Also, the average client assets have been witnessing a rising trend.

Driven by such initiatives, analysts are optimist about the prospects of the company. The Zacks Consensus Estimate for earnings has been raised nearly 1% and 2.1% for 2018 and 2019, respectively, over the last 60 days.

Also, this Zacks Rank #3 (Hold) stock has surged 36.2% in the past year, outperforming 22.6% growth for the industry it belongs to.



However, continued rise in operating expenses remains a primary concern for Schwab. Costs related to compensation and regulatory spending will likely keep overall expenses high in the upcoming quarters.

Also, significant dependence on fee-based revenue streams is a near-term woe for Schwab. This, along with lower degree of capital intensity compared to its peers make us apprehensive.

Some stocks in the same industry worth a look are E*TRADE Financial Corporation , Evercore Inc. (EVR - Free Report) and LPL Financial Holdings Inc. (LPLA - Free Report) , with each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for E*TRADE has been revised 9% upward for the current year in the last 60 days. The company’s share price has rallied 30.1% in the past six months.

Evercore has witnessed 7.8% upward earnings estimate revision for 2018 in the last 60 days. Its share price has increased 23.5% in the past six months.

LPL Financial stock has gained 26% over the past six months. Its earnings estimates for 2018 have moved up 27.2% in the last 60 days.

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