Charles Schwab stock (NYSE: SCHW) has seen an 8% year-to-date increase, underperforming the 12% gain in the S&P 500 index. In comparison, its peer Goldman Sachs (NYSE: GS) has surged 20% since the beginning of 2024. Despite this, Charles Schwab is currently trading 5% below its estimated fair value of $78 per share, according to Trefis. The stock has shown strong gains of 35% from $55 in early January 2021 to around $75 currently, but its performance has been inconsistent. Returns for SCHW were 59% in 2021, -1% in 2022, and -17% in 2023, underperforming the S&P 500 in 2023.
Consistently beating the S&P 500 has been challenging for individual stocks in recent years, including heavyweights in the Financials sector and megacap stars. However, the Trefis High Quality Portfolio, comprising 30 stocks, has outperformed the S&P 500 each year. This portfolio has provided better returns with less risk compared to the benchmark index, showcasing a more steady performance. With the uncertain macroeconomic environment, characterized by high oil prices and elevated interest rates, investors are questioning whether Charles Schwab may face a similar underperformance as seen in 2023 or potentially see a strong jump in the next 12 months.
In the first quarter of 2024, Charles Schwab surpassed street estimates for earnings, while revenues were in line with expectations. The company reported net revenues of $4.74 billion, a 7% decline year-over-year, attributed to a 19% drop in net interest income and an 8% decrease in trading revenues. Despite this, asset management & administration fees saw a 21% increase, supporting the top line. Expenses as a percentage of revenues increased in the quarter, leading to an 18% decrease in adjusted net income to $1.25 billion.
In FY 2023, Charles Schwab’s net revenues were $18.84 billion, down 9% from the previous year. The decrease was mainly due to drops in net interest income, trading revenues, and bank deposit account fees, partially offset by an increase in asset management and administration fees. Total noninterest expenses increased by 10% over the same period, resulting in a 30% year-over-year decline in adjusted net income to $4.65 billion. Looking ahead, it is expected that the trend of declining revenues will continue in Q2, with total revenues estimated to be around $19.66 billion in FY 2024. Furthermore, SCHW’s adjusted net income margin is projected to improve throughout the year, leading to an annual GAAP EPS of $3.32, with a P/E multiple just below 24x, resulting in a valuation of $78.
Overall, Charles Schwab’s stock performance has been mixed in recent years, with periods of strong gains and underperformance. Despite trading below its estimated fair value, the company has shown resilience in challenging financial conditions. With a focus on improving adjusted net income margins and expectations for continued revenue declines in FY 2024, investors will be closely watching how Charles Schwab navigates the uncertain macroeconomic environment and whether it can deliver strong earnings growth in the coming months.
