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Elevated Expenses to Hamper Schwab's (SCHW) Profitability
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Charles Schwab’s (SCHW - Free Report) profitability is expected to be hampered to an extent in the near term because of persistently rising expenses. A stretched valuation limits the stock’s upside potential.
Analysts also do not seem optimistic regarding the company’s earnings growth potential. The Zacks Consensus Estimate for SCHW’s current-year earnings has been revised 2.5% lower over the last 30 days. Thus, the company currently carries a Zacks Rank #4 (Sell).
Over the past six months, shares of SCHW have lost 21.2% compared with the industry’s 8.2% decline.
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Looking at its fundamentals, Schwab’s expenses witnessed a compound annual growth rate (CAGR) of 16.8% over the last seven years (2016-2022) mainly because of a rise in compensation and benefits costs and the company’s inorganic expansion efforts.
Overall expenses are expected to remain elevated in the quarters ahead because of the company’s strategic buyouts along with an increase in costs associated with compensation and regulatory spending. Per our estimates, total expenses are expected to increase at a CAGR of 4.8% over the next three years ended 2025.
Moreover, the stock seems overvalued when compared with the broader industry. Its current price-earnings (F1) and price-book ratios are above the industry averages. Hence, it has limited upside potential.
Nevertheless, the company’s acquisitions, likely to be earnings accretive, have reinforced its position as a leading brokerage player. Moreover, offering commission-free trading has led to a rise in client assets and brokerage accounts, thereby improving SCHW’s trading revenues. Further, higher interest rates are expected to aid margin growth in the near term.
Stocks to Consider
A couple of better-ranked stocks from the finance space are The Bank of New York Mellon (BK - Free Report) and Evercore (EVR - Free Report) .
The Zacks Consensus Estimate for BNY Mellon’s current-year earnings has moved 1.3% higher over the past 30 days. Its shares have gained 4.2% in the past six months. Currently, BK carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Evercore currently carries a Zacks Rank #2. Its earnings estimates for 2023 have been unchanged over the past 30 days. In the past six months, EVR’s shares have rallied 31%.
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Elevated Expenses to Hamper Schwab's (SCHW) Profitability
Charles Schwab’s (SCHW - Free Report) profitability is expected to be hampered to an extent in the near term because of persistently rising expenses. A stretched valuation limits the stock’s upside potential.
Analysts also do not seem optimistic regarding the company’s earnings growth potential. The Zacks Consensus Estimate for SCHW’s current-year earnings has been revised 2.5% lower over the last 30 days. Thus, the company currently carries a Zacks Rank #4 (Sell).
Over the past six months, shares of SCHW have lost 21.2% compared with the industry’s 8.2% decline.
Image Source: Zacks Investment Research
Looking at its fundamentals, Schwab’s expenses witnessed a compound annual growth rate (CAGR) of 16.8% over the last seven years (2016-2022) mainly because of a rise in compensation and benefits costs and the company’s inorganic expansion efforts.
Overall expenses are expected to remain elevated in the quarters ahead because of the company’s strategic buyouts along with an increase in costs associated with compensation and regulatory spending. Per our estimates, total expenses are expected to increase at a CAGR of 4.8% over the next three years ended 2025.
Moreover, the stock seems overvalued when compared with the broader industry. Its current price-earnings (F1) and price-book ratios are above the industry averages. Hence, it has limited upside potential.
Nevertheless, the company’s acquisitions, likely to be earnings accretive, have reinforced its position as a leading brokerage player. Moreover, offering commission-free trading has led to a rise in client assets and brokerage accounts, thereby improving SCHW’s trading revenues. Further, higher interest rates are expected to aid margin growth in the near term.
Stocks to Consider
A couple of better-ranked stocks from the finance space are The Bank of New York Mellon (BK - Free Report) and Evercore (EVR - Free Report) .
The Zacks Consensus Estimate for BNY Mellon’s current-year earnings has moved 1.3% higher over the past 30 days. Its shares have gained 4.2% in the past six months. Currently, BK carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Evercore currently carries a Zacks Rank #2. Its earnings estimates for 2023 have been unchanged over the past 30 days. In the past six months, EVR’s shares have rallied 31%.