Retail financial services firm Charles Schwab Co. (NYSE: SCHW) shares fell 17% in the days following its Q2 2024 earnings report. The company still beat EPS estimates and just barely eked out a YoY revenue gain. While underwhelming, the report wasn't a complete disaster, as one might assume based on the extent of the selling. The disappointment came from some of the steps the company is taking to fortify its balance sheet ahead of internet rate cuts and economic changes, including halting its stock buyback program. Schwab states that 2024 is a transition year, but value investors may find this an opportunity to jump into some shares at oversold levels.
Charles Schwab operates in the financial services sector, competing with fintechs like Robinhood Markets Inc. (NASDAQ: HOOD), Sofi Technologies Inc. (NASDAQ: SOFI), and online broker E-trade owned by Morgan Stanley (NYSE: MS).
Charles Schwab: From Discount Broker to Zero-Commission
Charles Schwab was the original discount broker, offering cheaper stock trading commissions than its full-service counterparts. However, it no longer calls itself a discount broker since zero-commission trading, spearheaded by Robinhood, has taken over the industry. Schwab had no choice but to adopt zero-commission stock trades as the industry shifted.
Robinhood has been a thorn in Schwab's side as more retail investors and trades migrate to the frictionless mobile platform. To offset the migration, Schwab has bolstered other services, including more sophisticated stock and options trading platforms, banking, research, wealth management and retirement services, and customer support services. Schwab offers a more comprehensive overall platform for investors and traders, complete with around-the-clock 24/7 and 365 days a year human customer service.
SCHW Forms a Symmetrical Triangle Breakdown
The daily candlestick chart on SCHW illustrates a symmetrical triangle breakdown pattern. This pattern is comprised of a descending upper trendline and an ascending lower trendline meeting at an apex point. The stock will break out through the upper trendline or break down through the lower trendline. In this case, SCHW broke down through the lower trendline on a price gap following its Q2 2024 earnings. Shares sold off 17% as it attempts to find a floor. The daily relative strength index (RSI) sank into deep oversold territory at the 20-band. Pullback support levels are at $59.67, $56.97, $53.60, and $51.27.
Charles Schwab Modestly Beats Analyst Estimates for Q2 2024
Schwab reported a Q2 2024 EPS of 73 cents, beating consensus analyst estimates by a penny. Revenues grew 0.7% YoY to $4.69 billion, beating $4.68 billion analyst estimates. Net interest margin expanded one basis point to 2.03% sequentially. Client transactional sweep cash balances ended June at $374.8 billion, reflecting customers' April tax disbursements, slowing client cash realignments, and continued net securities purchases by customers.
Total client assets in the quarter hit a record $9.41 trillion. Active brokerage accounts rose 4% YoY to 35.6 million. Core net new assets grew 17% YoY to $61.2 billion. Clients receiving ongoing advisory services rose 16% YoY. Net flow increases into Schwab Wealth Advisory and Wasmer Schroeder Strategies were 40% and 60%, respectively. Trading activity remained robust versus 2023 levels. YTD net buying of mutual and exchange-traded funds grew to the second-highest first half at $77 billion. Schwab was voted the #1 mobile app for customer experience by Corporate Insight for the second year in a row.
SCHW CEO Reminds Investors that 2024 is a Transition Year
Charles Schwab CEO Walt Bettinger reminded analysts that 2024 is a transition year. The company transitioned the last groups from the Ameritrade acquisition, which included $2 trillion in assets, 17 million clients, and over 3.5 million daily average trades. Former Ameritrade customers will move from negative to position asset flows net of new assets. Ameritrade customers will begin to utilize Schwab's capabilities in areas of financial planning, investment advisory and banking. Investment advisors that that formerly used Ameritrade for custodial services will bring net new assets to Schwab. It also expects Schwab Street Smart platform users to take advantage of the Thinkorswim platform.
Bettinger commented, “Halfway through the year, this definition of a transition year is being realized, again, as we anticipated. And all of these issues position us for a strong period of growth in client metrics and financial results in the coming years.”
Charles Schwab analyst ratings and price targets are at MarketBeat. The consensus price target among 15 analysts implies a 20.92% upside to $75.07.
