uploads///Rel val

What’s behind Charles Schwab’s Premium Valuations?


Jan. 11 2018, Updated 10:31 a.m. ET

Higher valuation multiple

Charles Schwab’s (SCHW) price-to-earnings ratio stood at 24.10x on an NTM (next-12-month) basis compared to its peer average of 14.37x. Wells Fargo (WFC), Bank of New York Mellon (BK), and LPL Financial Holdings (LPLA) have price-to-earnings ratios on an NTM basis of 13.45x, 13.37x, and 16.29x, respectively.

Charles Schwab generated trading revenues of $500 million in 9M17 (the first nine months of 2017) compared to $623 million in 9M16, a 20% fall mainly due to the reduction in prices.

Article continues below advertisement

Behind the rise and expectations

A possible reason for Charles Schwab’s higher valuations could be its one-year price target, which is higher than the current price. Wall Street analysts have given a one-year target of $53.18 on SCHW, a 3.2% rise from the current price of $51.52.

In 2018, Charles Schwab could witness a rise in its valuations mainly on the back of corporate tax rate reductions. Another factor that’s impacting the company’s valuations is a rise in the quarterly dividend payouts.

In October 2016, Charles Schwab declared a quarterly dividend of $0.07 per share, while in October 2017, it declared $0.08 per share. In 2018, the company is expected to declare total dividends of $0.38 per share.

On an LTM (last-12-month) basis, Charles Schwab had a price-to-earnings ratio of 32.97x, and peers (XLF) Bank of New York Mellon (BK), Wells Fargo (WFC), and LPL Financial Holdings (LPLA) have ratios of 15.90x, 15.92x, and 24.78x, respectively.


More From Market Realist