SCHW Charles Schwab Corporation
Wonderful sticky-asset-gathering franchise, but at 106 the market is pricing in growth well above history.
The business
Schwab operates a brokerage and banking platform earning money three ways: net interest income on client cash/margin balances and its bank deposits, asset management fees on Schwab funds and advisory balances, and trading-related revenue. It scales with total client assets and interest rates rather than transaction volume, having eliminated trading commissions.
Quality gate · 70/100
Moat & management
| Moat | wide moat |
| Source | switching costs |
| Trajectory | stable |
| Management | excellent |
Client assets are extremely sticky (brokerage/retirement account transfer friction, integrated banking-sweep-advisor ecosystem), and post-TD Ameritrade integration Schwab has massive scale advantages in cost per account; but the moat is partly a spread business exposed to rate-cycle and deposit-beta risk, capping it just below a pricing-power moat like a brand.
Management (Bettinger/Walt) has a long history of disciplined organic growth, a value-accretive TDA acquisition, consistent buybacks, and a rational dividend; balance sheet was stressed in 2023 by bank-run-era deposit outflows but was managed through without permanent impairment.
Owner-earnings inputs
| Owner earnings (TTM) | 9.42B |
| Owner-earnings yield | 5.1% |
| Free-cash-flow yield | 5.3% |
| Growth used (normalized) | 7.0% |
| Terminal growth | 3.0% |
| Discount rate (hurdle) | 8.0% |
Key risks
- Net interest margin compression if rates fall faster than deposit costs reprice
- Deposit/cash-sorting behavior reduces high-margin bank interest income in higher-rate regimes
- Regulatory/capital requirements on the bank subsidiary could constrain leverage and returns
Catalysts
- Continued run-off of low-yielding legacy AFS/HTM securities improving net interest margin
- Realization of remaining TD Ameritrade integration cost synergies
- Growth in advisor-managed and advisory fee-based assets as a more fee-stable revenue mix
Recent news
score · 8 articles
- How Investors Are Reacting To Charles Schwab (SCHW) Dividend And Surge In Retail Bullish Sentiment
- Charles Schwab (SCHW) Stock Still Looks Cheap On Fair Value Yet Fair On Earnings
- Why Charles Schwab Stock Jumped in July
- Retail Investors Just Got a Lot More Bullish on the Market, Schwab Says
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⚠ financial — owner earnings ≈ net income · financial — valued by residual income (ROE vs cost of equity on book equity) · Rich vs our conservative value, but a quality business is not a short — stance is WAIT for a better price, not sell.