On May 30, 2013, we reiterated our long-term recommendation on
The Charles Schwab Corporation
) at Neutral. Our decision rests on the synergies from its
strategic acquisitions and a stable capital position. However, we
remain concerned about the company's low trading activities and
reduced interest-rate yields.
Why the Neutral Stance?
Schwab's first-quarter 2013 earnings came in at $0.15 per share,
in line with the year-ago earnings. Results were primarily driven
by top-line growth, partially offset by higher operating expenses
and a rise in provision for loan losses. Moreover, improvement in
client assets and a rise in new brokerage accounts were the
tailwinds for the quarter.
The Zacks Consensus Estimate for 2013 remained stable at $0.74
per share over the last 60 days. However, for 2014, the Zacks
Consensus Estimate went down by 2.3% to $0.85 per share over the
same time frame. Hence, the company currently has a Zacks Rank #3
Schwab has been actively engaged in making acquisitions over the
past few years. Owing to this, the company's revenue base has
been well diversified, thus proving to be a major strength.
Moreover, Schwab has been making significant effort to lessen its
dependency on interest rates. The company has launched
initiatives comprising Schwab Index Advantage and Independent
Branch Services. This is expected to help Schwab augment its
revenue going forward, with or without a Fed rate hike.
However, Schwab's business model is highly sensitive to interest
rates. Low rates have been a drag on its revenues, compelling the
company to waive fees, which it charges its clients for managing
Moreover, Schwab has been experiencing pressure on Daily Average
Trades (DATs) as a result of the disengagement of retail traders.
Other Brokerage Firms to consider
Some better performing brokerage firms include
Ladenburg Thalmann Financial Services Inc
LPL Financial Holdings Inc
) with a Zacks Rank #1 (Strong Buy) and
GAIN Capital Holdings, Inc
) with a Zacks Rank #2 (Buy).
GAIN CAP HLDGS (GCAP): Free Stock Analysis
LPL FINL HLDGS (LPLA): Free Stock Analysis
LADENBURG THALM (LTS): Free Stock Analysis
SCHWAB(CHAS) (SCHW): Free Stock Analysis
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