Morningstar | We Still Forecast Healthy Earnings Growth for Charles Schwab
Charles Schwab reported record operating profits of $4.56 billion in 2018, and we still believe that operating profits should have a healthy increase over the next five years, even if we enter into a recession and have a period of lower interest rates. We project that over the next five years, operating income will increase over 30% from 2018's level due to the effect of interest rates have risen over the past couple of years, growth of the company’s bank, and growth in client assets. Net interest income is highly profitable, with management aiming for a majority of interest-rate-related revenue to fall to the bottom line. This mix shift to more net interest income will expand operating margins.There are three legs to the net interest income story. The first is the effect of higher short-term rates on the company’s floating-rate portfolio. The second is the repricing of the other portion of the company's fixed-rate bank portfolio, which has a duration of four to four and a half years. Only a fraction of this portfolio reprices annually, so much of the portfolio locked in low rates during the past several years and will reprice higher in the following years. The third leg is the movement of money market fund balances into the bank. This third leg should be completed in 2019, and as we expected, Charles Schwab increased its dividend 31% in anticipation of its completion. Over the next several years, we wouldn't be surprised if the company increases its dividend another 25%.Schwab Intelligent Portfolios is an interesting opportunity that is illustrative of the company's wide moat. Charles Schwab is one of the only companies that can make online advisory for the masses profitable, because of its scale-driven operational cost advantage, distribution platform, and proprietary products. Whatever developments occur in the retail brokerage and wealth management industry, Charles Schwab has the resources and capabilities to adapt to them.Charles Schwab is a savings and loan holding company. The company is engaged, through its subsidiaries, in wealth management, securities brokerage, banking, asset management, custody, and financial advisory services. The company provides financial services to individuals and institutional clients in two segments: Investor Services, which provides retail brokerage and banking services to individual investors and retirement plan services, as well as other corporate brokerage services, to businesses and their employees; and Advisor Services, which provides custodial, trading, banking and support services, as well as retirement business services to independent registered investment advisors and recordkeepers.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.