Charles Schwab strengthens its bullish trend after EPS beat

Retail financial services giant The Charles Schwab Co. NYSE:SW reported its first-quarter 2024 earnings in the wake of the market sell-off. Although results initially remained lower, shares managed to stage a rally to 52-week highs of $73.88. The financial services industry leader continued to see positive deposit inflows as net interest margin increased 13 basis points quarter-over-quarter to 2.02% thanks to higher margin balance utilization and declining financing for the integration of the outstanding balance. The company competes with retail intermediaries such as Bank of America Co. NYSE:BACowned by Merrill Lynch, e Morgan Stanley NYSE: MSowned by E-Trade e Robinhood Markets Inc. NASDAQ: HOOD.

Banking intermediary

Charles Schwab began as a discount broker that competed exclusively by providing discounted fixed commissions on stock trades compared to the conventional percentage commissions charged by full-service brokers. Schwab has helped reshape the equity trading commission landscape. As the years passed, Schwab expanded into wealth management, research, electronic trading and banking services.

Schwab pioneered discount brokerages and was influential in moving to zero-commission stock trading to prevent fintech disruptor Robinhood from taking more market share of the retail market. Banking services have grown to become a larger share of its profits and one of its biggest net interest margin earners. Although interest income has declined, the company still expects it to expand in 2024.

Daily ascending triangle

The daily candlestick chart of SCHW illustrates an ascending triangle pattern. The ascending trendline formed at $59.43 on January 17, 2024. Pullbacks formed higher lows as the stock rose to the flat upper trendline at $72.97. As SCHW trades closer to the peak point, the stock will break above the upper trend line or break the lower ascending trend line. The daily relative strength index is attempting to climb back through the 65 band. The pullback support levels are at $69.47, $66.13, $60.92, and $55.87.

Miss at the top, but at the bottom better

$75.06

+0.80 (+1.08%)

(At 11:27 a.m. ET)

52 week interval

$45.65

▼

$75.15

Dividend yield

1.33%

P/E ratio

31.41

Price target

$74.47

Schwab reported first-quarter 2024 earnings per share of 74 cents, beating analysts’ estimates by a cent. Revenue fell 7.3% year-over-year to $4.74 billion, but still beat consensus estimates of $4.71 billion. Net income was $1.4 billion, or 68 cents per diluted share. The company incurred a restructuring charge of $140 million. Total client assets reached a record $9.12 trillion. Active brokerage accounts increased 3% year over year to 35.3 million. Trading volume and margin balances grew 15% and 9%, respectively. Average revenue per trade fell 5% to $2.25, while total expenses fell 2%.

Inflows were still impressive

Schwab saw $96 billion in new core assets. Its wealth solutions segment saw net inflows of $14 billion, up 60% year over year, led by its fee-based flagship Schwab Wealth Advisory. Pre-tax profit margins increased by 500 basis points. Organic profits and a smaller balance sheet have helped strengthen its capital position. The Tier 1 leverage ratio was 8.8% and the adjusted Tier 1 leverage ratio was above 5%. While total net revenue declined year-over-year, strong customer engagement led sequential revenue to grow 6%.

Optimistic comments from the CEO

Schwab CEO Walt Bettinger provided his perspectives on the Spring Business Update call. The company continues to integrate the Ameritrade acquisition and enhance its digital platforms. Bettinger noted that inflation remained at moderate levels, although down substantially from year-ago levels. The company reported strong organic growth in the quarter. Net new assets increased just under $100 billion, with March alone generating $45 billion, up 6% year over year.

Vibrant markets have led to an increase in customer activity

Markets eased expectations of an interest rate cut, but remained buoyant as trading became more active, resulting in daily trading volume rising 15% quarter-on-quarter and client margin balances rising. 9% increase. Total customer interactions increased by 17%. It has more actively brought in more clients seeking help through its investment advisory solutions, driving revenue up 70% quarter-over-quarter.

The Ameritrade integration will be completed in May

Ameritrade’s declining acquisition abandonment rate was a key factor. The company expects to convert the final 10% of Ameritrade customer accounts in May, which is primarily made up of active traders and power users of the Think or Swim platform.

Bettinger concluded: “In my opinion, combining the best of Ameritrade with the best of Schwab sets the standard for anyone serving retail investors and independent investment advisors. Our combination of platform, service, dedicated relationships, investment advice for retail clients and expertise serving independent investment advisors is a powerful combination to drive future growth.”

Ameritrade analyst ratings and price targets I’m on MarketBeat.

Before you consider Charles Schwab, you’ll want to hear this.

MarketBeat tracks Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and Charles Schwab wasn’t on the list.

While Charles Schwab currently has a “Hold” rating among analysts, top analysts believe these five stocks are better buys.

View the five stocks here