The firm brought in $137.5 billion in net new assets.
The third quarter was very good for stock markets and in turn, it has been excellent for companies like Charles Schwab (NASDAQ:SCHW) that make their living in those markets.
The financial service behemoth and leading broker reported record revenue and earnings in Q3 and topped analysts’ forecasts. It sparked a rally as Schwab stock rose about 3% in early trading on Thursday.
Here are the key metrics.
- Revenue: $6.14 billion, up 27% year-over-year. It was a record high total and it beat consensus estimates of $5.97 billion.
- Net income: $2.36 billion, or $1.26 per share, up 67% year-over-year.
- Adjusted earnings: $1.31 per share, up 70% year-over-year and better than estimates of $1.23 per share.
A major driver for the record results was the addition of more than 1 million new brokerage accounts in the quarter, the fourth straight quarter that Schwab has reached that plateau. The company now has 38 million active brokerage accounts and 45.7 million total client accounts.
In the third quarter, Schwab brought in net new assets of $137.5 billion, bringing the total year-to-date to $355.5 billion – a 41% increase over the first three quarters of 2024. Overall, total client assets increased 17% in the quarter to a record $11.59 trillion.
“Strengthening organic growth trends, increasing adoption of wealth solutions, and favorable macroeconomic tailwinds powered another quarter of record revenue and earnings per share,” Schwab President & CEO Rick Wurster said.
Big sweep
Schwab derives about half of its revenue from interest income, as it invests money from sweep accounts to earn interest. In the quarter, client transactional sweep cash balances increased by $13.5 billion to $425.6 billion, reflecting organic growth, client net buying activity, and seasonality.
That helped the company generate $3.1 billion in net interest revenue, a 41% increase over the same quarter a year ago. The net interest margin expanded by 21 basis points to 2.86%.
It also made $1.7 billion in asset management fees, a 14% increase, and about $1 billion in trading revenue, a 25% gain. Further, bank deposit fees grew 67% to $247 million.
Schwab did not offer any specific guidance, but management anticipates revenue and earnings growth in 2026. The rate of growth will be informed by the path of rates, the macroeconomic environment, market sentiment, and client engagement.
Schwab received a few price target raises prior to earnings, but none post-earnings. Schwab stock has a median price target of $110 per share, which suggests 16% upside.
Schwab stock has had a strong year, up 29% year-to-date. It still looks like a good value, with a P/E ratio of 24 and a forward P/E of 17, Further, its five-year PEG ratio is just 0.69, which means it is undervalued relative to its long-term earnings expectations.
Schwab is fairly reliant on macroeconomic conditions and the movement of the stock market, so, while there is a lot to like, investors should keep that in mind during these uncertain times.
