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Why Schwab's Stock Could Gain Further Despite Cost Concerns
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The Charles Schwab Corporation’s (SCHW - Free Report) shares have gained more than 17% so far this year. Though the stock could not beat the Zacks categorized Investment Brokers industry’s gain of 23.1% due to expense headwinds, the company’s diversified revenue base and improving trading business are impressive enough to attract investors’ attention.
The last earnings estimate revision trend supports this view. The stock has seen the Zacks Consensus Estimate for the current year revising 1.6% to $1.30 over the last 60 days. As a result, it carries a Zacks Rank #2 (Buy).
Looking at the fundamentals, diversified revenue stream should act as a major tailwind for Schwab. The company’s revenue components are likely to grow on the back of a favorable interest rate environment. Moreover, the recent Fed rate hike is anticipated to benefit the company, as fee waivers continue to decline. Further, as the company’s business model is highly rate-sensitive, it is well positioned to thrive in a rising rate environment.
The company has witnessed an improvement in monthly metrics for the last two months, which is expected to continue boosting the company’s daily trading volume. Further, enhanced client confidence is believed to bring about a rebound in trading revenues, which were declining since the second half of 2014. Also, the fully-automated investment advisory services offered by Schwab are likely to improve its trading revenues.
In addition, the company continues to focus on low-cost capital structure. Schwab has also been consistently paying dividends to its shareholders and currently has a payout target of 20–30%.
The company witnessed an increase in the operating expenses over the last 5 years (2011–2015) at a CAGR of 5.6%. However, the company intends to utilize its flexibility in managing expenses going forward to adapt itself to the changing economic environment. Notably, management intends to lower cost by keeping a check on its marketing expenses and project spending during 2017.
Other investment brokerage firms that are worth considering include Morgan Stanley (MS - Free Report) , Stifel Financial Corp. (SF - Free Report) and E*TRADE Financial Corp. . While Morgan Stanley sports a Zacks Rank #1 (Strong Buy), Stifel Financial and E*TRADE Financial carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Over the last 60 days, the Zacks Consensus Estimate for Morgan Stanley increased by 9.2% to $2.73 per share for the current year.
The Zacks Consensus Estimate for Stifel Financial has climbed by 4.5% to $2.58 per share and by 5.9% to $1.79 per share for E*TRADE Financial, for the current year, over the same time frame.
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Why Schwab's Stock Could Gain Further Despite Cost Concerns
The Charles Schwab Corporation’s (SCHW - Free Report) shares have gained more than 17% so far this year. Though the stock could not beat the Zacks categorized Investment Brokers industry’s gain of 23.1% due to expense headwinds, the company’s diversified revenue base and improving trading business are impressive enough to attract investors’ attention.
The last earnings estimate revision trend supports this view. The stock has seen the Zacks Consensus Estimate for the current year revising 1.6% to $1.30 over the last 60 days. As a result, it carries a Zacks Rank #2 (Buy).
Looking at the fundamentals, diversified revenue stream should act as a major tailwind for Schwab. The company’s revenue components are likely to grow on the back of a favorable interest rate environment. Moreover, the recent Fed rate hike is anticipated to benefit the company, as fee waivers continue to decline. Further, as the company’s business model is highly rate-sensitive, it is well positioned to thrive in a rising rate environment.
The company has witnessed an improvement in monthly metrics for the last two months, which is expected to continue boosting the company’s daily trading volume. Further, enhanced client confidence is believed to bring about a rebound in trading revenues, which were declining since the second half of 2014. Also, the fully-automated investment advisory services offered by Schwab are likely to improve its trading revenues.
In addition, the company continues to focus on low-cost capital structure. Schwab has also been consistently paying dividends to its shareholders and currently has a payout target of 20–30%.
The company witnessed an increase in the operating expenses over the last 5 years (2011–2015) at a CAGR of 5.6%. However, the company intends to utilize its flexibility in managing expenses going forward to adapt itself to the changing economic environment. Notably, management intends to lower cost by keeping a check on its marketing expenses and project spending during 2017.
Other investment brokerage firms that are worth considering include Morgan Stanley (MS - Free Report) , Stifel Financial Corp. (SF - Free Report) and E*TRADE Financial Corp. . While Morgan Stanley sports a Zacks Rank #1 (Strong Buy), Stifel Financial and E*TRADE Financial carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Over the last 60 days, the Zacks Consensus Estimate for Morgan Stanley increased by 9.2% to $2.73 per share for the current year.
The Zacks Consensus Estimate for Stifel Financial has climbed by 4.5% to $2.58 per share and by 5.9% to $1.79 per share for E*TRADE Financial, for the current year, over the same time frame.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>