Amid the ongoing pressure in financial services stocks, several insiders at Charles Schwab Corp. (SCHW, Financial) purchased shares of the Westlake, Texas-based company over the past week according to the Insider Trades page, a Premium feature of GuruFocus based on SEC Form 4 filings.
On Wednesday, the Dow Jones Industrial Average traded around 31,828.68, down 326.72 points from Tuesday’s close of 32,155.40, on the back of Credit Suisse Group AG (CS, Financial) tumbling more than 15% on news that the Swiss bank’s major investor, Saudi National Bank, said it will not be able to provide more cash to Credit Suisse due to regulatory restrictions. Other major bank stocks like Citigroup Inc. (C, Financial), Wells Fargo & Co. (WFC, Financial) and Bank of America Corp. (BAC, Financial) tumbled between 3% and 5% for the day.
Despite the pressure in bank stocks, Charles Schwab insiders purchased 76,757 shares during the past week, including CEO Walter Bettinger’s purchase of 50,000 shares. As of Wednesday, Bettinger owns 668,669 shares of Schwab.
Bettinger said in a CNBC interview that the bank’s client assets are held separate from Schwab’s own assets, as required by the SEC Customer Protection Rule. The CEO further said that Schwab is “conservatively managed,” with just approximately 10% of client deposits in firms and approximately 80% of client deposits in government-backed paper. Bettinger further said that clients moved $42 billion in net new assets to the company in February and averaged $2 billion in net new assets per day during the month to date in March.
The CEO added that he remains confident in the company’s business, noting his purchase is "worth nearly $3 million at Schwab’s open price on Tuesday.”
On Wednesday, shares of Charles Schwab traded around $59.15, up more than 4% from the previous close of $56.68. The stock is modestly undervalued based on its price-to-GF Value ratio of 0.72.
Chief financial officer also purchased shares
Schwab Chief Financial Officer Peter Crawford purchased 5,000 shares on Tuesday, expanding his position to 44,725 shares.
Crawford said in the company's fourth-quarter 2022 earnings release that its “record financial performance” during 2022 highlighted Schwab’s resilient, diversified financial model. Net revenue increased 12% year over year, driven by net interest income growth of 33% on the back of higher interest rates “offsetting the impact of balance sheet contraction due to client cash sorting.”
The CFO commented that the company’s “strong revenue growth and balanced expense management” enabled Charles Schwab to achieve a pretax margin of 47.26%, which outperforms more than 79% of global capital markets companies according to GuruFocus.
Several other insiders purchased shares
According to the Insider Cluster Buys page, a Premium feature of GuruFocus, five unique insiders purchased shares of Charles Schwab over the past week. Directors Stephen Ellis, John Adams and Todd Ricketts purchased 21,757 shares in the aggregate on Tuesday.
Company financial strength overview
Charles Schwab’s low financial strength rank of 3 out of 10 is driven by a cash-to-debt ratio that underperforms approximately 66.88% of global competitors and a debt-to-equity ratio that underperforms approximately 74.26% of global capital market companies.
The company reported $40.19 billion in cash and cash equivalents as of December 2022, down from $62.79 billion as of December 2021.
Charles Schwab reported $20.82 billion in long-term debt as of December 2022, up from $18.91 billion as of December 2021. The company has issued $26.6 billion in debt over the past three years, a medium warning sign according to GuruFocus.
Company profitability and growth overview
Despite low financial strength, Charles Schwab has a GF Score of 86 out of 100 based on a rank of 10 out of 10 for GF Value and momentum, a growth rank of 9 out of 10 and a profitability rank of 7 out of 10.
The company’s profitability ranks 7 out of 10 on the back of net profit margins outperforming approximately 77% of global competitors. Even though the company’s return on assets underperforms approximately 51% of global peers, Charles Schwab’s return on equity outperforms over 80% of global capital markets companies.
Charles Schwab’s growth ranks 9 out of 10 on the back of a five-star business predictability rank, which suggests consistent revenue and earnings growth over the past 10 years.
Even though the company’s trailing three-year revenue and earnings growth rates underperform over 60% of global competitors, Charles Schwab has an estimated future three-year revenue growth rate of 21.99% according to analyst estimate data sourced from Morningstar Inc. (MORN, Financial). The company’s future revenue growth rate outperforms more than 96% of global competitors.
Company valuation and momentum overview
Charles Schwab’s GF Value ranks 10 out of 10 on the back of a price-to-GF Value ratio of 0.72, suggesting modest undervaluation. The stock is also undervalued based on several other valuation methods, including Bruce Greenwald’s earnings power value and the median price-sales value line.
Based on earnings of $3.50 and a 10-year earnings growth rate of 18%, Charles Schwab has a margin of safety of 43.24% using the default discounted cash flow calculator parameters of 10 years of terminal growth at 4% and a discount rate of 10%.
Charles Schwab’s momentum ranks 10 out of 10 on the back of a 14-day relative strength index of 25.36, which outperforms approximately 96% of global competitors. Relative strength index values of 30 or less suggest the stock may be oversold.
The stock’s 6-1 month momentum index of 11.02% outperforms approximately 73% of global capital market companies.
Guru holdings overview
Based on fourth-quarter 2022 13F equity portfolio filings, gurus with holdings in Charles Schwab include Dodge & Cox, Ken Fisher (Trades, Portfolio)’s Fisher Investments and Al Gore (Trades, Portfolio)’s Generation Investment Management.
