Higher interest rates and rise in client engagement continue supporting Charles Schwab’s (SCHW - Free Report) 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 earnings has moved upward. Backed by these upward estimate revisions, the company currently carries a Zacks Rank #2 (Buy).
In the past two years, shares of Schwab have rallied 14.8%, outperforming the industry’s rise of 3.4%.
Apart from above-mentioned factors, let’s check out what makes Schwab a solid pick.
Rising rates to lead to revenue growth: Schwab’s all three revenue components — asset management and administration fees, net interest revenues and trading revenues — will continue witnessing an increase, driven by higher interest rates. Further, management anticipates revenue growth to be in mid-to-upper teens in 2018 and net interest margin to remain in high 220s range.
Moreover, 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 17.5% and 12.3% for 2018 and 2019, respectively, indicates continued upward momentum in revenues.
Earnings strength: Schwab witnessed earnings growth of 21.6% in the past three to five years, significantly above the industry average of 12%. Continuing the momentum, its earnings are expected to grow at the rate of 48.8% for 2018 and 17.8% for 2019.
In addition, the company’s long-term (three to five years) estimated EPS growth rate of 16.4% (compared with the industry growth rate of 14.3%) 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.
Steady Capital Deployments: Schwab remains focused on a low-cost capital structure. Given the favorable capital position, the company announced shares buyback authorization worth $1 billion in October. Further, management has been able to continuously pay dividends. In July 2018, the company hiked its quarterly dividend by 30%, following a 25% hike announced in January 2018. It targets cash dividend in a range of 20-30% of net income.
Superior return on equity (ROE): Schwab’s ROE of 19.02% compared with the industry average of 11.89% indicates the company’s superior position over its peers.
Other Stocks Worth a Look
Other investment brokerage firms worth considering include E*TRADE Financial Corporation (ETFC - Free Report) , BGC Partners, Inc. (BGCP - Free Report) and TD Ameritrade Holding Corporation (AMTD - Free Report) .
E*TRADE has witnessed an upward earnings estimate revision of 6.9% over the past 60 days. Its shares have surged 49.6% in the past two years. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
BGC Partners has witnessed an upward earnings estimate revision of 2.2% over the past 60 days. Also, in the past two years, its share price has increased 4.4%. The stock currently carries a Zacks Rank #2.
TD Ameritrade’s shares have risen 26.8% over the past two years. Earnings estimates for the Zacks Rank #2 stock have moved up 2.8% in the past 60 days.
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