Charles Schwab: We Continue To Like The Stock, Says William Blair

In a research note published yesterday, William Blair analyst Christopher Shutler maintained an Outperform rating on Schwab (SCHW), following 2Q14 results. No price target was assigned.

Shutler noted, “We are pleased to see Schwab’s tier-1 leverage ratio increase to 6.8% as of June 30. CFO Joe Martinetto commented that the company has now entered the 6.75%-7.0% range it considers to be a sufficient buffer above its 6.0% targeted ratio. Schwab will soon begin to assess the “potential timing and extent of adjustments” to sweep cash alternatives, with the goal of better monetizing relatively yield-inelastic client cash balances. Bottom line, enhanced balance sheet flexibility should result in improved NIM and earnings, and with it better dividends for shareholders as Schwab maintains a 20%-30% payout ratio”.

Shutler continued, “Investment perspective. At $27.56, Schwab trades at 29 times our 2014 EPS estimate and 24 times our 2015 estimate. The stock has traded at closer to 20 times forward EPS historically. With the potential for dramatic interest rate upside and continued solid organic growth, we continue to like the stock quite a bit, particularly for longer-term oriented investors”.


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