Schwab Reports Y/Y Jump in DARTs

Last week, Charles Schwab Corp. ( SCHW - Analyst Report ) released its Monthly Activity Report for May 2012. The company recorded an increase of 9% in Daily Average Revenue Trades (DARTs) from May 2011 to 432,300. However, the company’s DARTs slipped 6% from the prior month.

In May, Schwab registered a marginal fall in new assets, with net inflow of $9.2 billion as against $9.4 billion in May 2011. However, the new assets showed an impressive growth from $1.0 billion recorded in April 2012.

Further, Schwab’s total client assets stood at $1.76 trillion as of May-end, rising 5% from $1.67 trillion in the prior-year month, but declining 4% from $1.83 trillion in the prior month. The company opened 70,000 brokerage accounts in the reported month, climbing 15% from 61,000 in May 2011, but slipping 20% from 87,000 in April 2012.

At the end of the reported month, Schwab’s active brokerage accounts totaled 8.706 million, up 7% year over year and almost at par sequentially. Moreover, clients’ banking accounts grew 11% year over year and 1% sequentially to 815,000 in May. Similarly, the number of corporate retirement plan participants was 1,522 million, improving 6% from May 2011 and almost in line with April 2012.

Peer Performances

Last week, E*TRADE Financial Corporation ( ETFC - Analyst Report ) reported almost in-line average U.S. trades numbers compared with the prior month in its Activity Report for the month of May. However, the U.S. trades dropped 5% year on year to 146,254. The fall largely resulted from the uncertain economic recovery and investors’ reluctance to invest in the equity markets.

Earlier this month,TD Ameritrade Holding Corporation ( AMTD - Analyst Report ) recorded 2% year-over-year fall in DARTs for May to 370,000. However, DARTs improved 1% from the prior month. TD Ameritrade announced $431.7 billion of total client assets for May-end, up 3% from May 2011 and down 4% from April 2012.

Our Viewpoint

We believe that the recent acquisitions will boost Schwab’s top line to some extent, leading to overall growth. While its focus on low-cost capital structure will help sustain better results in the upcoming quarters, the company’s financials will continue to be impacted by lower trading activities and volatile interest rates. Moreover, we remain concerned about the company’s low capital intensity relative to its peers.

Schwab currently retains a Zacks # 3 Rank, which translates into a short-term Hold rating.