Higher interest rates and rise in client engagement continue to support The Charles Schwab Corporation (SCHW - Free Report) in improving its financials. Also, strong fundamentals and organic growth prospects make this investment brokerage firm a solid choice now.
Analysts seem to be optimistic about the company’s prospects as the stock is witnessing upward estimate revisions. Over the past 60 days, the Zacks Consensus Estimate for 2018 and 2019 have moved upward marginally. Backed by these upward estimate revisions, the company currently carries a Zacks Rank #2 (Buy).
Also, in the past year, shares of Schwab have rallied 25.3%, outperforming the industry’s rise of 18%.
Apart from above-mentioned factors, let’s check out what makes Schwab a solid pick.
Rising rates to favor further revenue growth: Schwab’s all three revenue components — asset management and administration fees, net interest revenues and trading revenues — will continue witnessing a rise, driven by higher interest rates. In fact, management anticipates revenue growth to be in low double-digits in 2018, backed by rate hikes and other favorable macroeconomic factors.
Moreover, further rise in rates will likely lead to a notable improvement in net new assets and total client asset balances. Further, enhanced client confidence is expected to bring about a rebound in trading revenues. These are likely to bolster Schwab’s non-interest revenues.
Notably, Schwab’s revenues witnessed a 16.2% compounded annual growth rate over the last three years, ending 2017. Also, the company’s projected sales growth rate of 18.6% and 12.7% for 2018 and 2019, respectively, indicates continued upward momentum in revenues.
Earnings strength: Schwab witnessed earnings growth of 20.1% in the last three to five years, significantly above the industry average of 6.4%. Continuing the momentum, its earnings are expected to grow at the rate of 48.2% for 2018 and 18.1% for 2019.
In addition, the company’s long-term (three to five years) estimated EPS growth rate of 16.8% (compared with the industry growth rate of 13.9%) promises rewards for investors over the long run.
Further, the stock has a Growth Score of B. Our research shows that stocks with a Growth Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best upside potential.
Superior return on equity: Schwab’s ROE of 16.84% compared with the industry average of 8.75% indicates the company’s commendable position over its peers.
Other Stocks Worth a Look
Other investment brokerage firms worth considering include Evercore Inc. (EVR - Free Report) , LPL Financial Holdings Inc. (LPLA - Free Report) and Investment Technology Group, Inc. (ITG - Free Report) . All these stocks sport a Zacks Rank 1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Evercore Partners has witnessed an upward earnings estimate revision of 2.7% over the past 60 days. Its shares have gained 19.3% in the past year.
LPL Financial has witnessed an upward earnings estimate revision of 22.4% over the past 60 days. Also, in the past year, its shares have rallied 17.3%.
Investment Technology Group’s shares have risen 12.8% over the past six months. It earnings estimates have moved up 16.8% in the past 60 days.
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