Charles Schwab ( SCHW ) has seen its revenue grow at a CAGR of 12% and its stock price jumped 3.3x in between 2013 and 2017. The company has seen a significant growth in its interest earning assets, supported by the Fed's interest rate hikes over the last few years. Schwab's focus on both innovating customer-centric financial products and supporting customer investment decisions seems to be working well for the company, given the significant growth in asset management fees. Trading revenues have witnessed some pressure due to declines in revenue per trade amid rising competition from traditional and discount brokerage.
Our price estimate for Charles Schwab's stock stands at $55 , which is above the market price. We expect the company's overall revenues to grow by nearly 20% in 2018. Our interactive dashboard shows the historical trends and our expectations for the company's FY'18 top line; you can modify the key value drivers to see how they impact the company's results.
Interest Earning Revenues Continue To Boost Top Line
The Fed's rate hikes contributed to a 14% annual surge in Charles Schwab's interest earning assets. Additionally, the yield on these assets has gone up by 7% annually. The growth in assets, coupled with the yield increase, has led to a 22% jump in interest revenues. With recent rate hikes and more planned hikes in the near term, we expect the segment to continue contributing to the company's growth, due to its high asset base and moderate current yield on these assets in comparison to competitors like E-Trade And Ameritrade.
Asset Management Fees See Growth
Over the past few years, customer demand for financial expertise has grown. Amid uncertain market conditions, Schwab has paid special attention to its customers with financial advisers assisting them on an individual basis. Additionally, the company continues to develop innovative financial products to suit its customers. It is the among the top 5 ETF providers in the U.S., and with the launch of the Schwab Intelligent Platform in 2015, it was among the first of the established players to enter the robo-advisor industry. With minimal fees and enhanced customer support for portfolio management, this segment has attracted a lot of investors, crossing $21 billion in assets for this platform alone in just a few years. The asset base and revenues from the asset management segment have seen over 10% growth annually in recent years.
Pressure On Trading Revenues
Schwab's decision to cut its commissions per trade by nearly 40% led to substantial declines in trading revenues in 2017. Increased competition from discount and traditional brokerages led Schwab to reduce its commissions. Improving macro conditions did lead to a surge in trading volumes, helping the company to offset a part of its losses. While the fee cuts make sense strategically given the competitive pressure, they will still adversely impact the company's near-term trading revenues.
What's behind Trefis? See How it's Powering New Collaboration and What-Ifs
For CFOs and Finance Teams | Product, R&D, and Marketing Teams
More Trefis Research
Like our charts? Explore example interactive dashboards and create your own