SCHW Stock: Upbeat stock market, rate hikes to drive growth for Charles Schwab

Investment management firm Charles Schwab Corporation (NYSE: SCHW) has stayed largely unaffected by the coronavirus crisis, rather it managed to tap into new opportunities. The company owes its impressive financial performance to a sharp increase in client assets, booming stock market, and favorable interest rate environment.

Last week, the Westlake-based company’s stock hit a new record after making steady gains over the past several months. But since then it pared a part of the gains and settled near $90. The weakness looks temporary as experts see the stock gaining at a steady pace and crossing the $100-mark this year, which would still represent a reasonable valuation. Simply put, now is the time to invest in SCHW, especially for those looking to hold it for the long term.

M&A Synergies

TD Ameritrade, which joined Charles Schwab’s fold in 2020, has contributed handsomely to the latter’s business by adding around 15 million new brokerage accounts and a significant volume of client assets. The client base got yet another boost when the company purchased USAA’s Investment Management Company. The deals helped it shrug off the initial slump – market volatility affected interest income and dragged down profit — and effectively navigate through the virus crisis.

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Read management/analysts’ comments on quarterly reports

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The equity market witnessed a steady increase in retail investors since the onset of the COVID crisis, thanks to favorable conditions like opportunities created by the new normal, ease of access, and lower costs. Estimates show that the momentum would continue in the near future, which bodes well for brokerage firms like Charles Schwab.

Strong Q4

The company had $8.14 trillion in client assets as of December 2021. In the final three months of the year, adjusted profit increased 16% year-over-year to $0.86 per share, aided by a 13% growth in net revenues to $4.7 billion. However, earnings fell short of expectations. All the main business segments expanded in double digits.

“What we have long known, however, and what the events of 2021 have reinforced, is that success with clients and consistent growth over time is only made possible by managing for the long-term and by putting clients first, serving them with clarity and focus in all environments. Maintaining a rock-solid balance sheet and robust capital position enables us to concentrate on leveraging our client focus into sustained business momentum that helps build long-term stockholder value,” said Peter Crawford, the chief financial officer of Charles Schwab.

Outlook

The management bets on its ongoing growth initiatives, focused on scale and efficiency, and aggressive technology adoption to maintain the growth momentum. Going forward, the business should benefit from potential interest rate hikes and the ongoing economic recovery. Also, customers would find the competitive fee structure attractive.

Meanwhile, persistent inflationary pressures and fluctuations in the equity market, due to the virus-induced disruption, might cause hindrance for growth. It needs to be noted that investor engagement has already dropped from the highs seen more than a year ago.

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Infographic: Highlights of Morgan Stanley (MS) Q4 2021 earnings report

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Charles Schwab’s stock has mostly outperformed the market in recent months and stayed above its long-term average. Having gained about 7% this year, the shares traded higher in early trading on Thursday.