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Schwab Jan DATs Rise, ???14 Guidance Up

Zacks Equity Research

In its monthly market activity report for Jan 2014, The Charles Schwab Corporation (SCHW) reported Daily Average Trades (DATs) of 588,200. This marked an increase of 17% from both the prior month and the prior-year month.

Total client assets were $2.22 trillion, down 1% from Dec 2013 but up 10% from Jan 2013. Schwab’s net new assets – bought by existing as well as new clients – were $11.9 billion, which was up 20% from the previous month but fell 2% from the year-ago month.

In the reported month, Schwab opened 90,000 brokerage accounts, down 6% from Dec 2013 but increasing 3% from Jan 2013. The company’s active brokerage accounts totaled 9.1 million, almost flat with the prior month and up 3% year over year.

Clients’ banking accounts were 923,000, up 1% from the prior month and 6% year over year. Moreover, Schwab had 1.33 million corporate retirement plan participants, up 2% from Dec 2013 but down 15% from Jan 2013.

Performance of Other Brokerage Firms

TD Ameritrade Holding Corp. (AMTD) reported a rise in average client trades per day in its Activity Report for January. Average client trades per day were 496,000, up 22% from the prior month and 28% year over year.

Online brokerage firm E*TRADE Financial Corp. (ETFC) is expected to report its Daily Average Revenue Trades (DARTs) for Jan 2014 earlier next week.

2014 Outlook

Management expects revenue growth to be in high single digits and pre-tax profit margin of nearly 34% based on the assumption that S&P will appreciate 6.5%, Fed Funds will remain at the current level of 0.00%–0.25% and DARTs will rise in the range of 5%–6% year over year.

Further, management anticipates net interest margin of nearly 160 basis points based on the assumption of a stable or an improved interest rate scenario.  Moreover, the pressure on money fund fees is expected to continue.  

Our Viewpoint

Amid a volatile operating environment, Schwab witnessed a rise in both client assets and trading volumes, which bode well going forward. Further, the company’s low-cost capital structure should help it improve results in the coming quarters. However, a low interest rate environment and stringent regulations pose challenges.

Currently, Schwab carries a Zacks Rank #2 (Buy). A better-ranked investment broker is LPL Financial Holdings Inc. (LPLA), which has a Zacks Rank #1 (Strong Buy).

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