Missouri-based investment firm Wedgewood Partners is bullish on Charles Schwab Corp (NYSE:SCHW), a $72-billion market cap bank and brokerage company. Wedgewood added SCHW to its portfolio during the first quarter of 2016 and held 2.33 million shares as of the end of the third quarter last year. In its Q4 investor letter (you can download a copy here), the investment firm discussed Charles Schwab, noting that the financial company is generating “excellent and expanding pre-tax profit margins, relative to its large captive and independent competitors.” Let’s take a look at Wedgewood’s comments about Charles Schwab.
Charles Schwab continues to execute on their differentiated strategy of providing low-cost financial services to mass affluent customers and advisors in the U.S. The Company continued to generate excellent and expanding pre-tax profit margins, relative to its large captive and independent competitors, despite aggressively lowering trading commissions earlier in the year, and launching low-cost index mutual funds in the most recent quarter.
As Schwab attracts more assets to its banking and brokerage platforms, the Company’s overhead expense as a percentage of platform assets continues declining to what we calculate to be roughly 15 basis points per dollar of assets (trailing four quarters through the end of September). This overhead expense compares to the nearly 150 basis points of net interest margin available to the Company on almost $70 billion of client assets that they plan on transferring from money markets to the banking subsidiary over the next three years.
Combined with a dramatically lower tax rate for the foreseeable future, we think Schwab has a unique opportunity to substantially grow its earnings base over the next several years.
Charles Schwab Corp (NYSE:SCHW) is engaged in providing financial services, with $3.36 trillion in client assets as of December 31, 2017. The company offers wealth management, securities brokerage, banking, money management, custody, and financial advisory services to individual investors and independent investment advisors.
Investors seem to be happy with the company’s performance, with the stock gaining more than 21% in 2017. Over the last 12-month period, the value of Charles Schwab’s stock has moved up more than 27%. The stock has a P/E ratio of 34.6x, compared to the industry average of 19.5x.
Meanwhile, Charles Schwab Corp (NYSE:SCHW) is a popular stock the hedge funds tracked by Insider Monkey. There were 55 funds in our database with bullish positions in the company at the end of the third quarter of 2017.