Charles Schwab (SCHW) is an American multinational financial services company with offerings in banking, brokerage, wealth management, and advisory services. I am bullish on the stock. (See Analysts’ Top Stocks on TipRanks)
Increasing Credit Exposure
A potential catalyst for upside growth in Schwab’s stock price could be its recent decision to expand its fixed-income trading division. The company has committed to launching five new separately managed strategies and three high-yield strategies.
The decision will benefit the firm and its stock alike amid the looming contractionary economic policy in the United States, as higher interest rates and taxes could bolster the fixed income trading climate.
Robust Asset Management Division Growth
The financial services firm has experienced 36% year-over-year growth in assets under management and 74% growth over the same period in average margin balances.
It’s believed that the closure of its $26 billion acquisition of TD Ameritrade has been the benefactor of AUM growth.
Improving Balance Sheet
Schwab holds a strong balance sheet. Assets rose by 6% in Q3, driven by bank deposits and payables.
The firm expects Q4 balance sheet expansion to remain robust. According to the company’s CFO, Peter Crawford, “We expect the benefit from the most recent increase in rate to start being translated into lower premium amortization probably in the latter part of Q4 and then heading into Q1.”
Furthermore, Schwab’s diversifying its investment portfolio. The firm’s decision to outsource much of its asset management services to specialized third-party money managers comes as a risk-return utility play it hopes to benefit from.
Growth Metrics
Growth prospects remain promising. Over the next year, Schwab’s revenue, diluted EPS, and EBITDA are anticipated to surge by 22.1%, 10.8%, and 26.8%, respectively.
If the forecasted growth metrics are realized, investors could expect sector outperformance from the stock as its market share improves.
Wall Street’s Take
Turning to Wall Street, Charles Schwab has a Strong Buy consensus rating, based on seven Buys and two Holds assigned in the past three months. The average Charles Schwab price target of $93.33 implies 18.9% upside potential.
Concluding Thoughts
Charles Schwab stock is in good shape as its growth prospects are well aligned, while interest rates in 2022 could support financial services stocks. In addition, the TD Ameritrade acquisition has added substance to the firm’s asset management division, and the launch of new fixed-income funds could give rise to earnings in 2022.
Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.
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