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Analyst Blog

On Friday, Charles Schwab Corp. (SCHW - Analyst Report) released its Monthly Activity Report for April 2011, recording net outflows of $0.5 billion in net new assets (including both new and existing clients) as the customers withdrew money to pay income taxes. This is the first time that the company has reported a net outflow since June 2010.

However, Schwab’s client assets totaled $1.68 trillion at the end of April, reflecting a growth of 2% from the prior month and 11% on a year-over-year basis. The hike was driven by an increase in net market gains (due to rising markets), which was partially offset by a decline in net new assets.

Schwab reported opening of 83,000 brokerage accounts in April 2011. This was higher than 82,000 registered in March but lower than 89,000 recorded in April 2010. Schwab also reported a slow down in trading activity in April. The company’s daily average trades were 435,000 in April, flat with the prior month but down 1% year over year.

At the end of April, Schwab’s clients’ active brokerage accounts totaled 8.112 million, flat with the prior month but up 3% year over year. Similarly, clients’ banking accounts stood at 728,000, showing an increase of 1% sequentially and 18% year over year. However, the number of corporate retirement plan participants declined 1% from March 2011 and 2% from April 2010 to 1,436 million.

While Schwab’s focus on lower-cost capital structure will sustain better results in the upcoming quarters, its financials will continue to be affected by lower trading activities and volatile interest rates. However, after the completion of the acquisition of optionsXpress Holdings Inc. in the third quarter of 2011, the company’s top line will benefit from increased trading in derivatives. Also, capital spending initiatives will augment further revenue growth.

Schwab currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Also, considering the fundamentals, we maintain a long-term Neutral recommendation on the stock.

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