Charles Schwab (SCHW) is a name that needs no introduction; its recent acquisition of TD Ameritrade has made it the nation’s largest brokerage firm as measured by total client assets, notes Mike Cintolo, editor of Cabot Top Ten Trader.
Schwab’s financial performance is the reason for its recent strength, and the likelihood of higher interest rates is expected to give the bottom line a boost going forward, too. In Q4, revenue leapt 13% from a year ago to $4.8 billion, while per-share earnings of 86 cents rose 16%, though both figures actually fell short of Wall Street’s estimates.
The earnings and revenue misses were partly due to disappointing trading fees, although asset management and administration fees were up 12%. Additionally, the company’s trading revenues of just over $1 billion were 19% higher (and up 6% from the prior quarter).
It’s not unusual for a brokerage firm to miss their number, and forward-looking measures are more encouraging: Assets under management increased a solid 22% from a year ago (and 7% from Q3) to a record of just over $8 trillion across 33 million brokerage accounts as the firm continues to attract new clients, helped in part by the Ameritrade acquisition.
On that front, Schwab cited “unprecedented” activity in the past year and said clients remained “actively engaged” with the financial markets through 2021, with customers depositing north of $80 billion in December alone—28% above the firm’s prior single-month record!
Looking ahead, management said rising interest rates would help the firm navigate volatile market conditions and generate meaningful revenues in 2022. Wall Street sees top- and bottom-line growth in the low single digits for Q1 but rising 11% and 35%, respectively, in Q2, with earnings expected to grow north of 20% both this year and next. The company’s latest 11% dividend increase (0.9% yield) is an added bonus.
