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Stock Analyst Update

Schwab Benefits From High Trading Activity in Q1

We don't plan on making a change to the wide-moat company's fair value estimate.


Wide-moat Charles Schwab (SCHW) significantly increased its exposure to active traders by merging with TD Ameritrade, and that has bolstered results in the current environment. Charles Schwab reported record net income of $1.48 billion, or $0.73 per diluted share, on $4.7 billion of net revenue. Excluding acquisition-related costs and amortization of intangibles, the company reported non-GAAP net income of $1.6 billion, or $0.84 per diluted share. Net revenue increased $539 million, or 13% sequentially, with $362 million of the increase coming from trading revenue. Trading revenue of $1.2 billion in the quarter is over 500% higher than it was a year ago before the merger with TD Ameritrade. While acknowledging that there has likely been a permanent increase in trading activity from the move to $0 commission equity trades at the end of 2019, annualized trades per active brokerage account of about 70 in the first quarter, according to our calculations, definitely looks like an aberration compared with about 50 trades in the fourth quarter of 2020 and averages in the teens for both Charles Schwab and TD Ameritrade before 2020. We don’t anticipate making a material change to our $56 fair value estimate for Charles Schwab.

Client assets at Charles Schwab were a record $7 trillion, up 6% sequentially, which will power long-term asset-based revenue and earnings growth; however, short-term earnings will be driven by trading. Asset management and administration fees increased $29 million, or 3%, while net interest income increased $102 million, or 5.6%, sequentially. The increase in net interest income is more related to the company’s trading activity, as interest on margin loans increased $119 million, or 27%, sequentially. Despite an increase in deposits and the company’s securities portfolio in its bank, interest from securities decreased $12 million, or 1%, sequentially due to lower yields.

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Michael Wong does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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