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Schwab (SCHW) Gains Almost 20% QTD: Will the Rally Continue?
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Shares of Charles Schwab Corp. (SCHW - Free Report) have gained 19.5% quarter to date. Though the stock has slightly underperformed the industry’s rally of 20.2%, it has gained considerably compared with the S&P 500’s growth of 13.8% in the same period.
Apart from the robust quarter-to-date price performance, the company’s performance was impressive last year as well. Despite the near-zero interest rate environment and the continued uncertainty related to the coronavirus pandemic, Schwab’s shares gained 58.6% in 2021, outperforming the industry’s rally of 34.3%.
SCHW’s solid performance has been driven by its inorganic growth efforts and initiatives to augment trading revenues.
Image Source: Zacks Investment Research
Moreover, analysts are optimistic regarding this Zacks Rank #3 (Hold) stock’s earnings growth prospects. Over the past 30 days, the Zacks Consensus Estimate for SCHW’s 2022 earnings has been revised 1% upward.
Let’s take a look at the key factors that are likely to keep supporting Schwab’s steady price appreciation.
Revenue Growth Initiatives: Acquisitions of TD Ameritrade, USAA’s Investment Management Company, Wasmer, Schroeder & Company, LLC, and the buyout of Motif’s technology and intellectual property have strengthened Schwab’s position in the brokerage industry. These deals have been earnings accretive and are expected to help diversify revenues.
Despite the company lowering fees on certain advice solution products, revenues from the same increased as average client asset balances improved. Driven by such efforts, SCHW’s total client assets witnessed a compound annual growth rate of 35.8% over the last four years (2018-2021).
Further, Schwab remains focused on enhancing trading revenues. For this, it continues to undertake initiatives including lowering its basic online equity and ETF trade commissions to zero and reducing fees for the Schwab market cap-weighted index mutual funds. It launched Schwab Stock Slices, through which investors can own shares of any company in the S&P 500 Index starting at $5 each, even though these shares cost more. These efforts, aimed at building client base, are likely to lead to improvement in trading income.
In 2022, SCHW is expected to witness revenue growth of 12.2% while in 2023, its top line is projected to grow 13.1%.
Higher Interest Rates: Supported by higher rates, Schwab’s net interest margin is expected to improve in the quarters ahead. After slashing rates thrice in 2019, the central bank cut interest rates to near-zero in March 2020 (to cushion the U.S. economy from the coronavirus-induced mayhem), which hurt the company’s margins. Nevertheless, with the Federal Reserve already raising interest rates four times this year, along with expectations of more such hikes in 2022, the company’s margins are expected to no longer be under pressure. Thus, margin growth is expected to further aid profitability.
Earnings Strength: Schwab has witnessed earnings growth of 13.5% in the past three to five years. The uptrend is expected to continue in the near term. The company’s earnings are projected to grow 20.6% in 2022 and 23.2% in 2023. Further, its long-term (three-five years) projected earnings growth rate of 21.3% promises reward for investors.
Solid Balance Sheet & Capital Positions: As of Jun 30, 2022, Schwab had cash and cash equivalents of $64.6 billion, and total debt of $22.5 billion (of which only 6.2% is short-term in nature). Thus, supported by sufficient earnings strength, the company is expected to continue to be able to meet debt obligations in the near term, even if the economic situation worsens.
SCHW remains focused on maintaining a low-cost capital structure, which has been able to support its capital deployments. In July 2022, the company announced a 10% hike in the quarterly dividend to 22 cents per share, following one hike in January 2022, one in 2020, one in 2019 and two in 2018. It also has a share repurchase program in place. Recently, SCHW’s board of directors replaced the previous buyback authorization with a new plan, under which, the company has the approval to repurchase a total of $15 billion of its common stock.
Thus, supported by efficient capital deployments, Schwab is expected to continue to enhance shareholder value.
Associated Banc-Corp’s Zacks Consensus Estimate for 2022 earnings has moved 15.3% upward over the past 60 days. In the past three months, ASB’s shares have gained 11%.
Zions’ Zacks Consensus Estimate for 2022 earnings has been revised 5.5% upward over the past 60 days. ZION’s shares have gained 12.7% in the past three months.
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Schwab (SCHW) Gains Almost 20% QTD: Will the Rally Continue?
Shares of Charles Schwab Corp. (SCHW - Free Report) have gained 19.5% quarter to date. Though the stock has slightly underperformed the industry’s rally of 20.2%, it has gained considerably compared with the S&P 500’s growth of 13.8% in the same period.
Apart from the robust quarter-to-date price performance, the company’s performance was impressive last year as well. Despite the near-zero interest rate environment and the continued uncertainty related to the coronavirus pandemic, Schwab’s shares gained 58.6% in 2021, outperforming the industry’s rally of 34.3%.
SCHW’s solid performance has been driven by its inorganic growth efforts and initiatives to augment trading revenues.
Image Source: Zacks Investment Research
Moreover, analysts are optimistic regarding this Zacks Rank #3 (Hold) stock’s earnings growth prospects. Over the past 30 days, the Zacks Consensus Estimate for SCHW’s 2022 earnings has been revised 1% upward.
Let’s take a look at the key factors that are likely to keep supporting Schwab’s steady price appreciation.
Revenue Growth Initiatives: Acquisitions of TD Ameritrade, USAA’s Investment Management Company, Wasmer, Schroeder & Company, LLC, and the buyout of Motif’s technology and intellectual property have strengthened Schwab’s position in the brokerage industry. These deals have been earnings accretive and are expected to help diversify revenues.
Despite the company lowering fees on certain advice solution products, revenues from the same increased as average client asset balances improved. Driven by such efforts, SCHW’s total client assets witnessed a compound annual growth rate of 35.8% over the last four years (2018-2021).
Further, Schwab remains focused on enhancing trading revenues. For this, it continues to undertake initiatives including lowering its basic online equity and ETF trade commissions to zero and reducing fees for the Schwab market cap-weighted index mutual funds. It launched Schwab Stock Slices, through which investors can own shares of any company in the S&P 500 Index starting at $5 each, even though these shares cost more. These efforts, aimed at building client base, are likely to lead to improvement in trading income.
In 2022, SCHW is expected to witness revenue growth of 12.2% while in 2023, its top line is projected to grow 13.1%.
Higher Interest Rates: Supported by higher rates, Schwab’s net interest margin is expected to improve in the quarters ahead. After slashing rates thrice in 2019, the central bank cut interest rates to near-zero in March 2020 (to cushion the U.S. economy from the coronavirus-induced mayhem), which hurt the company’s margins. Nevertheless, with the Federal Reserve already raising interest rates four times this year, along with expectations of more such hikes in 2022, the company’s margins are expected to no longer be under pressure. Thus, margin growth is expected to further aid profitability.
Earnings Strength: Schwab has witnessed earnings growth of 13.5% in the past three to five years. The uptrend is expected to continue in the near term. The company’s earnings are projected to grow 20.6% in 2022 and 23.2% in 2023. Further, its long-term (three-five years) projected earnings growth rate of 21.3% promises reward for investors.
Solid Balance Sheet & Capital Positions: As of Jun 30, 2022, Schwab had cash and cash equivalents of $64.6 billion, and total debt of $22.5 billion (of which only 6.2% is short-term in nature). Thus, supported by sufficient earnings strength, the company is expected to continue to be able to meet debt obligations in the near term, even if the economic situation worsens.
SCHW remains focused on maintaining a low-cost capital structure, which has been able to support its capital deployments. In July 2022, the company announced a 10% hike in the quarterly dividend to 22 cents per share, following one hike in January 2022, one in 2020, one in 2019 and two in 2018. It also has a share repurchase program in place. Recently, SCHW’s board of directors replaced the previous buyback authorization with a new plan, under which, the company has the approval to repurchase a total of $15 billion of its common stock.
Thus, supported by efficient capital deployments, Schwab is expected to continue to enhance shareholder value.
Finance Stocks Worth Considering
A couple of better-ranked stocks from the finance space are Associated Banc-Corp (ASB - Free Report) and Zions Bancorporation (ZION - Free Report) . While ASB currently carries a Zacks Rank #2 (Buy), ZION sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Associated Banc-Corp’s Zacks Consensus Estimate for 2022 earnings has moved 15.3% upward over the past 60 days. In the past three months, ASB’s shares have gained 11%.
Zions’ Zacks Consensus Estimate for 2022 earnings has been revised 5.5% upward over the past 60 days. ZION’s shares have gained 12.7% in the past three months.