Morningstar

Charles Schwab Earnings: Firing on All Cylinders Amid Heavy Trading

We’ve raised our fair value estimate of Schwab stock.

Exterior of the Charles Schwab Building in San Francisco.
Smith Collection/Gado via Getty
Securities in This Article
Charles Schwab Corp
(SCHW)

Key Morningstar Metrics for Charles Schwab

What We Thought of Charles Schwab’s Earnings

Charles Schwab SCHW reported second-quarter results on July 18, with investors looking for strength in client trading volume, net new asset growth, and net interest margin improvement.

Why it matters: The company overdelivered across the board. Strong client inflows attested to the draw of Schwab’s swelling trading, banking, wealth management, and registered investment advisor custody platform, while expense discipline drove an outstanding 910-basis-point improvement in adjusted operating margin to 50.1%. We expect the firm to defend those gains moving forward.

  • Schwab has increased organic net new assets in its mainstay wealth management business by $218 billion year to date, a 39% improvement from the year-ago period. Roughly 37% of those fed into Schwab’s managed investing solutions, which now represent 35%-40% of asset management segment revenue.
  • The company’s scalable, low-cost platform—the basis of our wide economic moat rating—allows for extremely high incremental margins. Management expects just 4.75%-5.25% expense growth for 2025, despite raising its guidance for sales growth to 18.50%-19.50%.

The bottom line: We’ve raised our fair value estimate to $105 per share from $97 after digesting these results. This reflects time value ($2 per share), a stronger capital markets outlook for 2025, and our expectation that Schwab should maintain its cost efficiency gains.

  • We now expect gradual operating margin expansion, with average GAAP operating margin of 51.5% over the decade to come, up from 47% a quarter ago. This reflects roughly 260 basis points of incremental margin expansion now projected for 2025, aligning with management guidance, which we expect Schwab to be able to maintain with an improved market outlook.
  • Schwab is our top pick in the brokerage space, currently trading about 10% below our $105 valuation.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

This article was generated with the help of automation and reviewed by Morningstar editors. Learn more about Morningstar’s use of automation.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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