SCHW Charles Schwab Corporation
Elite brokerage franchise priced for peak returns; normalized ROE supports well under today's 4x book.
The story
Schwab is the dominant US retail brokerage and custody franchise, with more than $10T in client assets, scale-driven cost leadership and steady net new asset inflows. Its trailing 23.7% ROE benefits from peak-ish net interest margins as high-cost bank supplemental funding runs off, and from a book depressed by AOCI losses on its securities portfolio. The balance sheet is liquid but sensitive to rates: cash sorting and unrealized bond losses were exposed in 2023. With record revenue and heavy buybacks, it sits in the late, favorable part of the rate and trading cycle.
I normalize ROE to 20%, below the trailing 23.7%, because NIM and trading activity are near cyclical highs. Some premium over 2023 levels stays because AOCI accretion rebuilds book, and a capital-light fee mix supports returns above peers. Book growth is modest because Schwab returns most of its earnings through buybacks and dividends. Beta sits at the industry anchor given rate and market sensitivity. At a cost of equity near 10.2%, the model value falls well below the roughly 4x P/B the market pays, and I accept that gap as the market pricing in peak economics plus AOCI recovery.
Value drivers
| Return on equity (normalized) | 20.0% |
| Book-value growth (Y1) | 7.0% |
| Terminal book growth | 4.0% |
| Beta | 1.10 |
| Failure probability | 1.0% |
| Cost of equity | 10.2% |
Valuation bridge
| PV of excess returns | 20.37B |
| PV of terminal excess | 8.89B |
| Equity value | 71.20B |
| ÷ shares → per share | $41.17 |
News
bullish +0.30 · 8 articles
- Schwab's Dividend ETF Has Nearly Quadrupled Its Payout Since 2012
- Charles Schwab Posted Record Quarterly Revenue of $7.08 Billion. Can It Vault Higher, or Was This a Peak?
- Here's What to Expect From Charles Schwab Corporation's Next Earnings Report
- Retiring on $800K? These 4 ETFs Let You Take 5% Safely
- Schwab's strategy chief shares playbook for private market
- Why Your Retirement Income Strategy May Need to Change
- Bond Volatility Has Charles Schwab Stock And MarketAxess In Focus
- Charles Schwab (SCHW) Is Opening Private Markets To Retail Investors
Projected excess returns on equity
| Yr | Book equity | ROE | Excess return | PV |
|---|---|---|---|---|
| 1 | 42.66B | 20.0% | 4.18B | 3.79B |
| 2 | 45.65B | 19.1% | 4.08B | 3.36B |
| 3 | 48.69B | 18.3% | 3.93B | 2.93B |
| 4 | 51.78B | 17.4% | 3.73B | 2.53B |
| 5 | 54.88B | 16.5% | 3.47B | 2.14B |
| 6 | 57.99B | 15.7% | 3.17B | 1.77B |
| 7 | 61.08B | 14.8% | 2.81B | 1.42B |
| 8 | 64.14B | 13.9% | 2.39B | 1.10B |
| 9 | 67.13B | 13.1% | 1.92B | 802.44M |
| 10 | 70.04B | 12.2% | 1.40B | 530.12M |
Key risks
- Rate cuts compress net interest margin and renew cash-sorting pressure
- Market downturn cuts trading volumes, asset-based fees and new asset inflows
- Interest-rate shock widens AOCI losses and constrains capital or buybacks
Catalysts
- Continued AOCI accretion and bank balance-sheet runoff lifting book and capital return
- Sustained net new asset growth and wealth or advice fee expansion