Investment brokerages aren't built to excel in extreme bear markets, but Barron's Michael Santoli says Charles Schwab (SCHW) comes closer to that ideal than any other firm. Schwab is a well-run asset-gathering machine, with steady revenue streams, pared down costs and branding as the 'honest broker.' All this means Schwab is in an excellent position to gain market share, even during the current economic turmoil.
Schwab's stock has fallen 30% this year, but has outperformed the S&P 500 and its discount-broker and asset-manager peers. Friday's closing price was $16.61 but if markets merely stabilize and trading volume doesn't collapse, shares could easily approach $20 again. Schwab is trading at 14 times estimated 2009 earnings and under 16 times trailing earnings, compared to its previous 20 times earnings. The company regularly provides a 30% return on equity, and has a pretax profit margin near 40%.
Schwab has collected a net $98.3B in client assets this year, bringing its total under supervision to $1.2T. The firm has limited balance-sheet leverage and doesn't do any proprietary trading. It's one of the largest money-fund managers, and oversees Schwab Bank. The bank boasts low fees, high-interest checking and conservative lending, and allows Schwab the opportunity to expand its share of customers' financial lives. CEO Walt Bettinger says "in times like this, consumers become focused on the core strengths of franchises... There is tremendous leverage in our model."
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- On Friday, Schwab confirmed it will not participate in the Treasury's bailout program. "Our capital strength, ongoing operating discipline, and history of conservative fiscal management allow us to continue to maintain the strength, safety and soundness of our business without the need for government capital," said chairman Charles Schwab in a statement.
- Charles Schwab (SCHW): Q3 EPS of $0.26 beats by $0.02. Revenue of $1.25B (-3.1%) in-line. (PR)
