Higher interest rates and rise in client engagement continue to support Charles Schwab’s (SCHW - Free Report) financials. Also, strong fundamentals and organic growth prospects make this investment brokerage firm worth betting on.
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 2019 and 2020 earnings has moved upward. Backed by these upward estimate revisions, the company currently sports a Zacks Rank #1 (Strong Buy).
In the past three months, shares of Schwab have rallied 16%.
Apart from the 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, the company anticipates revenue growth of 7-11% in 2019.
Rise in rates will likely lead to a notable improvement in net new assets and total client asset balances. Also, enhanced client confidence is expected to bring about a rebound in trading revenues. These are likely to bolster Schwab’s non-interest revenues.
The company’s projected consensus sales growth rates of 10.4% and 6.2% for 2019 and 2020, respectively, indicate continued upward momentum in revenues.
Earnings strength: Schwab witnessed earnings growth of 23.3% in the past three to five years, significantly above the industry average of 14%. Continuing the momentum, its earnings are expected to grow at 14.7% rate for 2019 and 9.7% for 2020.
In addition, the company’s long-term (three to five years) estimated EPS growth rate of 15.4% (compared with the industry growth rate of 11.9%) promises rewards for investors over the long term.
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 or 2 (Buy),offer the best upside potential.
Steady capital deployments: Schwab remains focused on a low-cost capital structure. Given the favorable capital position, it announced share buyback authorization worth $4 billion in January. Further, management has been able to continuously pay dividends. In January, it hiked the quarterly dividend by 31%, following two hikes announced in 2018. It targets the cash dividend of 20-30% of net income.
Superior return on equity (ROE): Schwab’s ROE of 20.11% compared with the industry average of 14.35% indicates the company’s superior position over its peers.
Stock looks undervalued: The stock currently has a Value Score of B. The Value Score condenses all valuation metrics into one actionable score that helps investors steer clear of “value traps” and identify stocks that are truly trading at a discount. Our research shows that stocks with a Style Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.
Other Key Picks
Some other top-ranked investment brokerage firms include Evercore Inc (EVR - Free Report) , LPL Financial Holdings Inc. (LPLA - Free Report) and Stifel Financial Corporation (SF - Free Report) . All these stocks currently sport a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Evercore has witnessed an upward earnings estimate revision of 5% over the past 60 days. Its shares have grown33.6% in the past three months.
LPL Financial has witnessed an upward earnings estimate revision of 8% over the past 60 days. In the past three months, its share price has improved 26.9%.
Stifel Financial’s shares have rallied 43% over the past three months. Earnings estimates for the stock have moved up 6.9% in the past 60 days.
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