Charles Schwab Corp Valuation – June 2018 $SCHW

Company Profile (excerpt from Reuters): The Charles Schwab Corporation (CSC), incorporated on November 25, 1986, is a savings and loan holding company. The Company, through its subsidiaries, engages in wealth management, securities brokerage, banking, money management and financial advisory services. The Company provides financial services to individuals and institutional clients through two segments: Investor Services and Advisor Services. The Investor Services segment provides retail brokerage and banking services, retirement plan services and other corporate brokerage services. The Advisor Services segment provides custodial, trading, and support services as well as retirement business services. The Company’s subsidiaries include Charles Schwab & Co., Inc. (Schwab), which is a securities broker-dealer with over 335 domestic branch offices in 46 states, as well as a branch in each of the Commonwealth of Puerto Rico and London, England, and serves clients in Hong Kong through one of the Company’s subsidiaries, as of December 31, 2016; Charles Schwab Bank (Schwab Bank), which is a federal savings bank located in Nevada, and Charles Schwab Investment Management, Inc. (CSIM), which is the investment advisor for Schwab’s mutual funds referred to as the Schwab Funds, and Schwab’s exchange-traded funds (ETFs), referred to as the Schwab ETFs.

SCHW Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of SCHW – June 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $77,456,710,587 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 195.45% Pass
5. Moderate PEmg Ratio PEmg < 20 34.75 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.05 Fail
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $1.65
MG Growth Estimate 15.00%
MG Value $63.60
Opinion Fairly Valued
MG Grade C
MG Value based on 3% Growth $23.95
MG Value based on 0% Growth $14.04
Market Implied Growth Rate 13.13%
Current Price $57.41
% of Intrinsic Value 90.26%

Charles Schwab Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $0.78 in 2014 to an estimated $1.65 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 13.13% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Charles Schwab Corp revealed the company was trading above its Graham Number of $24.49. The company pays a dividend of $0.32 per share, for a yield of 0.6% Its PEmg (price over earnings per share – ModernGraham) was 34.75, which was above the industry average of 22.96.

Charles Schwab Corp receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Graham Number $24.49
PEmg 34.75
PB Ratio 4.05
Dividend Yield 0.56%
TTM Dividend $0.32
Number of Consecutive Years of Dividend Growth 2

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Long-Term Debt & Capital Lease Obligation $4,128,000,000
Total Assets $248,320,000,000
Intangible Assets $1,328,000,000
Total Liabilities $228,990,000,000
Shares Outstanding (Diluted Average) 1,362,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.28
Dec2017 $1.61
Dec2016 $1.31
Dec2015 $1.03
Dec2014 $0.95
Dec2013 $0.78
Dec2012 $0.69
Dec2011 $0.70
Dec2010 $0.38
Dec2009 $0.68
Dec2008 $1.05
Dec2007 $1.97
Dec2006 $0.95
Dec2005 $0.55
Dec2004 $0.21
Dec2003 $0.35
Dec2002 $0.08
Dec2001 $0.14
Dec2000 $0.51
Dec1999 $0.49
Dec1998 $0.28

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.65
Dec2017 $1.27
Dec2016 $1.05
Dec2015 $0.89
Dec2014 $0.78
Dec2013 $0.68
Dec2012 $0.65
Dec2011 $0.74
Dec2010 $0.84
Dec2009 $1.06
Dec2008 $1.15
Dec2007 $1.07
Dec2006 $0.56
Dec2005 $0.33
Dec2004 $0.23
Dec2003 $0.27
Dec2002 $0.25

Recommended Reading:

Other ModernGraham posts about the company

Charles Schwab Corp Valuation – August 2016 $SCHW
27 Companies in the Spotlight This Week – 4/4/15
Charles Schwab Corporation Annual Valuation – 2015 $SCHW
17 Companies in the Spotlight This Week – 3/29/14
Charles Schwab Corp (SCHW) Annual Valuation – 2014

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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