On Sep 2, 2014, we issued an updated research report on The Charles Schwab Corporation ( SCHW ). Diversified revenue streams remain a major strength for the company. Further, results continue to benefit from top-line growth.
Schwab continues to grow in its trading business, driven by a steady improvement in equity markets. The company's Daily Average Trades (DATs) are on the rise. Unless the pace of economic recovery decelerates, this trend is expected to prevail.
Also, management's aggressive efforts to increase its client base in advisory solutions are bearing fruit. The advisory solution fees have grown at a three-year CAGR of 17.3% (2011-2013), with the trend continuing in the first half of 2014 as well. Despite sluggish economic growth, Schwab's cash holdings declined to pre-crisis levels, implying strong involvement of clients.
Further, given the persistent top-line growth, analysts have been bullish on the stock. Hence, the Zacks Consensus Estimate over the last 60 days for both 2014 and 2015 has moved upward by a penny to reach 96 cents and $1.18 per share, respectively.
On the flip side, elevated operating expenses remain a major concern. Schwab continues to witness higher expenses resulting from a rise in costs related to compliance and compensations. At the same time, low rates have been a drag on the top line, forcing Schwab to waive its fund-management fees.
Presently, Schwab has a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Some better-ranked investment brokers include Arlington Asset Investment Corp. ( AI ), Moelis & Company ( MC ) and Piper Jaffray Companies ( PJC ). All these stocks sport a Zacks Rank #1 (Strong Buy).
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