On Jun 17, 2016, we issued an updated research report on The Charles Schwab CorporationSCHW . This investment brokerage firm is trying to improve revenues by undertaking restructuring measures to become less dependent on interest rates.
Schwab's trading business is witnessing a rebound after going through a rough patch since the second half of 2014. With the anticipated gradual rise in interest rates and enhanced client confidence, the trend is expected to sustain. Also, the new fully automated investment advisory service offered by Schwab will likely boost trading revenues.
Further, Schwab's top line continues to benefit from management's aggressive efforts to increase client base in advisory solutions. The advice solution fees have grown at a 5-year CAGR of 19.8% (2011-2015), with the trend continuing in the first quarter of 2016 as well.
However, as the Fed decided to keep the interest rates unchanged, Schwab expects revenue growth in the low teens and average net interest margin in the low 1.70% range for 2016.
A persistent rise in operating expenses remains a primary concern for Schwab. Costs related to compensation and regulatory spending will likely keep overall expenses high in the upcoming quarters.
Further, the stock has dipped nearly 13.82% so far this year.
Notably, analysts have adopted a neutral stance on the stock of late. Over the last 60 days, the Zacks Consensus Estimate for 2016 and 2017 has remained stable at $1.27 and $1.54, respectively.
Schwab currently holds a Zacks Rank #3 (Hold).
Stocks that Warrant a Look
Investors seeking an exposure to the investment broker industry can consider LPL Financial Holdings Inc. LPLA , Raymond James Financial, Inc. RJF and Stifel Financial Corp. SF . While both LPL Financial and Raymond James sport a Zacks Rank #1 (Strong Buy), Stifel carries a Zacks Rank #2 (Buy).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.