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Understanding Charles Schwab’s Higher Valuations

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Mar. 29 2018, Updated 10:30 a.m. ET

Price-to-book ratio

On a next-12-month basis, Charles Schwab’s (SCHW) price-to-book ratio stands at 3.74x, reflecting a higher valuation than its competitors’ average of 1.60x.

The company’s competitors (XLF) Raymond James Financial (RJF), Wells Fargo (WFC), and Goldman Sachs (GS) have price-to-book ratios of 2.13x, 1.38x, and 1.31x, respectively, on a next-12-month basis.

Charles Schwab currently has higher valuations mainly because of its expected EPS (earnings per share) for 1Q18, which are significantly higher than its 1Q17 EPS. Another factor that may have increased the company’s valuations was the 15% YoY rise in its total client assets in February 2018. Moreover, the company could witness a rise in its net interest margin going forward in 2018 mainly due to the Federal Reserve’s expected rate hikes.

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Rise in quarterly payouts

Charles Schwab has raised its quarterly dividend payouts, which could attract the attention of market observers. On January 25, 2018, the company declared a quarterly dividend of $0.10 per share, which it paid on February 23, 2018.

Improvements in Charles Schwab’s EPS estimates in 1Q18 could also be a reason for its higher valuations. Around three months ago, the company’s EPS estimate was $0.43, and it’s since been raised to $0.52. Around a month ago, this estimate was $0.53, and since then, it’s been the same.

On a trailing-12-month basis, Charles Schwab’s price-to-book ratio stands at 4.06x, while its peers (XLF) Raymond James Financial, Wells Fargo, and Goldman Sachs have price-to-book ratios of 2.46x, 1.30x, and 1.20x, respectively, on a trailing-12-month basis.

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