This morning the Charles Schwab Corporation released an interesting but brief press release. In short, Chuck has a reason to be smiling. The announcement said:
• Net new assets entering the company by new and existing clients in July 2010 totaled $6.2 billion.
• Total client assets were $1.421 trillion as of month-end July, up 11% from July 2009 and up 4% from June 2010.
• Client daily average trades were 365.3 thousand in July 2010, down 1% from July 2009 and flat to June 2010.
The SMART report can be viewed with its accompanying 12-month data here.
FBR Capital Markets analysts Matt Snowling and Bill Jackson issued a research note soon after the announcement, reiterating an outperform rating on Schwab. They put a price target of $20 on the stock (SCHW), or 21.5 times their 2011 EPS estimate of $0.93 per share. Schwab stock sold off this morning by nearly 1 percent to around $14.64 a share.
The FBR analysts are bullish medium to long term; Brad Hintz, a well-regarded analyst at Bernstein, in a note last month after second-quarter results, calls the stock a market performer, saying he didn’t see a catalyst to drive the stock to higher multiples on the horizon.
Here is what the FBR analysts said this morning:
“FBR takeaways. Total client assets increased 4% sequentially and
11% year over year to $1.421 trillion, as net inflows returned, at
$6.2 billion, following two months of outflows driven by a mutual
fund clearing client. Market-related gains totaled $53.7 billion
or 3.9% of beginning client assets. For the third consecutive
quarter, Schwab clients were net sellers of equity funds (-$644
million), favoring fixed-income funds (+$2.3 billion). The
reduction in risk appetite exhibited by Schwab clients is not
surprising given the increase in market volatility and the
pullback in the equity markets.
* “Value add. Organic growth returned during the month, and core
earnings power continues to grow, as active brokerage and banking
accounts are up 4% and 31%, respectively, year over year. In
addition, the stability in total client trades was better than
expected, helping alleviate some pressure on trading revenue.
* “Earnings. We are leaving our 3Q10, 2010, and 2011 EPS estimates
unchanged at $0.17, $0.53, and $0.93, respectively.
* “Valuation. Our $20 price target equates to 21.5x our 2011 EPS
estimate and 13.9x our normalized EPS forecast. We view these
valuations as appropriate given Schwab's historical average
forward P/E of 21x, as well as peers trading at 9x to 11x
"normalized" EPS. Given the uncertain timing of normalized EPS
occurring, we apply a conservative 17x multiple to our normalized
EPS estimate and discount that back over two years to arrive at
our $20 price target.”