Charles Schwab is Thursday's IBD Stock Of The Day as the investment brokerage and asset manager benefits from a powerful combination: higher interest rates and rallying stock prices. SCHW stock edged closer to a cup-with-handle buy point in afternoon stock market action.
Schwab Client Assets Grow
On Monday, Schwab reported monthly activity for October, with client assets rising 5% from the prior month to $7 trillion. From a year ago, assets still fell 12% due to lower market valuations.
A day later, Deutsche Bank analyst Brian Bedell bumped up his price target on Schwab stock to 101 from 100, keeping a buy rating. Bedell hiked EPS estimates for a range of financials based on the strong equity market rebound.
Net Interest Margins Rising
Bedell and a number of other analysts also raised Schwab's price target after its Oct. 27 business update, highlighting the outlook for net interest margins. CFO Peter Crawford noted that "even after we reach peak rates this cycle, we have the ability to continue expanding our net interest margin over the following years as our fixed investment portfolio rolls over."
In Q3, Schwab grew revenue 20% from a year ago to $5.5 billion. That growth was led by a 44% increase in net interest revenue to $2.9 billion. Schwab's net interest margin grew 35 basis points from Q2 to 1.97%.
In its business update, Schwab indicated its net interest margin could reach 3%+ in fiscal 2025, Barclays analyst Benjamin Budish noted.
The Oct. 27 update also reaffirmed the outlook for "a higher level of capital return to shareholders" and robust client growth. In Q3, Schwab's active brokerage accounts increased 4% from a year ago to about 34 million.
SCHW Stock
On Thursday, SCHW stock rose 0.4% to 77.71. Schwab stock is about 5% below an 81.18 buy point from a long cup-with-handle base that extends back to January.
Within that long consolidation, SCHW stock formed a cup that offered a 77.51 entry. Schwab cleared that entry on Oct. 27, after its bullish fall update. That early entry point is still intact, though Schwab stock has mostly drifted lower in the recent leg of the stock market rally sparked by the softer CPI inflation reading on Nov. 10.
Schwab's handle on the longer consolidation has seen a tight trading range. If that keeps up through Friday, the handle will also become a 3-weeks-tight pattern. The buy point would remain the same.
