The Charles Schwab (SCHW) company, commonly just called Schwab, recently delivered relatively flat quarterly sales, and investors are definitely not happy about that. Are they overreacting, though? I am bullish on SCHW stock because Schwab’s report includes some positive statistics that shouldn’t be overlooked.
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Schwab is a brokerage and bank that also offers financial advisory services. Schwab owns the popular TD Ameritrade platform, where people can trade stocks, options, and futures contracts.
It’s the start of earnings season again, and, as usual, the financial sector is early in the reporting cycle. Schwab seems to be the first financial firm to really disappoint investors during this second-quarter earnings season, but maybe there’s a great dip-buying scenario now that SCHW stock is suddenly cheaper.
Flat Growth Isn’t Good Enough Anymore
We’re living in a strange time, when meeting people’s expectations and delivering a quarter that’s as good as the year-earlier quarter isn’t good enough. Investors want to see constant growth, and there’s no room for companies to take a breather and just have a flat quarter.
Of course, this isn’t realistic or sustainable. Not every company can be like Nvidia (NVDA) and report huge sales growth quarter after quarter. That’s practically impossible for a financial firm like Schwab, which is dealing with high interest rates that tend to disincentivize borrowing and lending activity.
In any case, “flat growth” is a funny term that seems like a contradiction, but to a certain extent, that’s what Schwab delivered in 2024’s second quarter. The company’s net revenue grew 1% year-over-year to $4.69 billion, which was basically in line with the consensus estimate of $4.68 billion.
Turning to the bottom line, Schwab reported Q2-2024 adjusted earnings of $0.73 per share, which is only slightly lower than the year-earlier quarter’s result of $0.75 per share. Also, Schwab’s EPS came in slightly above Wall Street’s consensus forecast of $0.72.
This quarterly earnings result should be put into context. For the past half-dozen quarterly reports, Schwab has consistently beaten Wall Street’s EPS expectations by a few pennies per share. By now, investors should be accustomed to this when it comes to Schwab.
We could also find some other issues if we really wanted to nitpick Schwab’s Q2-2024 results. In particular, Schwab’s adjusted pre-tax profit margin declined from 42% in the year-earlier quarter to 41% in 2024’s second quarter. Furthermore, during the same time frame, Schwab’s annualized return on stockholders’ equity decreased from 17% to 14%.
If those were the only stats to take note of, then maybe investors would have been justified in dumping Schwab stock, as they did yesterday morning. By 10:30 a.m. Eastern time, the stock was down by nearly 7%, which is a sharp move for a large-cap bank stock. SCHW is also down another 5% today.
Big-picture thinkers don’t have to follow the panicky crowd, however, and you’re encouraged to delve deeper into Schwab’s data before making any hasty trades today.
Looking at Schwab’s Quarterly Highlights
Charles Schwab CEO Walt Bettinger touted some important Q2-2024 highlights that investors shouldn’t ignore. He observed, “New brokerage accounts opened this year grew to over 2 million and second quarter core asset gathering equaled $61.2 billion – a year-over-year increase of 17%.”
These are significant points of improvement for Schwab. If the company was really in trouble, then millions of people wouldn’t open new brokerage accounts and Schwab’s core asset base would contract, not expand like it did.
We can follow up Bettinger’s data points with some other noteworthy figures. In particular, Schwab’s second-quarter 2024 total client assets expanded to a record $9.41 trillion, and the company’s active brokerage accounts grew 4% year-over-year to 35.6 million.
In addition, Bettinger noted that, on a year-to-date basis, enrollments in Schwab’s Wealth Solutions segment grew by around 30%. The CEO further stated that Schwab’s “net flows into Managed Investing solutions reached $25 billion – an increase of 56% versus the first 6 months of 2023.”
Plus, in case you haven’t noticed, many traders and investors are turning to exchange-traded funds (ETFs) to build up their wealth nowadays. This inflow into funds has greatly benefited Schwab, as the company’s “year-to-date client net buying of mutual and exchange-traded funds totaled” a whopping $77 billion. This represents Schwab’s second-highest first-half-of-a-year performance ever in this area.
Is Schwab Stock a Buy, According to Analysts?
On TipRanks, SCHW comes in as a Moderate Buy based on 10 Buys, three Holds, and one Sell rating assigned by analysts in the past three months. The average Charles Schwab stock price target is $81.23, implying 26.7% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell SCHW stock, the most profitable analyst covering the stock (on a one-year timeframe) is Steven Chubak of Wolfe Research, with an average return of 20.05% per rating and a 75% success rate. Click on the image below to learn more.
Conclusion: Should You Consider Schwab Stock?
By nitpicking and cherry-picking, anyone can construct a bearish case against Schwab or practically any other financial firm. Yet, informed investors shouldn’t nitpick too much, and they also shouldn’t be too spoiled to accept flat growth results sometimes.
Besides, not all of Schwab’s recent quarterly results weren’t flat, and some of the data points are quite good. Therefore, I find Schwab’s overall performance to be acceptable, and I would consider buying SCHW stock now that it’s trading at a lower price.
