Charles Schwab (NYSE:SCHW) Stock Analysis: Is It Undervalued or Poised for Growth?
With NYSE:SCHW trading at $79 per share, the market seems uncertain about the company’s future. Is this an opportunity for long-term investors, or are there fundamental risks keeping the stock in check? The recent full exit of TD Bank’s 10.1% stake removes a major sentiment overhang, refocusing investors on Schwab’s core financial performance and long-term trajectory. Schwab’s January 2025 financials indicate strong organic growth, with $30 billion in net new assets, 7.3 million daily trades, and new brokerage accounts rising by 18% year-over-year. With analysts forecasting ~30% annual EPS growth through 2025 and 2026, the question now is whether Schwab remains undervalued or if investors should expect more downside risks.
TD Bank’s Full Exit: A Turning Point for NYSE:SCHW
For over a year, investors speculated about TD Bank's planned divestment from Charles Schwab (NYSE:SCHW). That uncertainty is now over. On February 10, 2025, TD Bank sold its entire 184.7 million-share stake, eliminating an overhang that had previously limited Schwab’s stock performance. Schwab itself repurchased $1.5 billion worth of stock from TD at a discount, demonstrating management’s confidence in the company’s valuation. The removal of this overhang allows investors to refocus on Schwab’s core business, which has seen steady improvement in key financial metrics. Over the past 12 months, Schwab's stock has outperformed the S&P 500, rising 21% compared to the index’s 17% gain.
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Schwab’s January 2025 Performance Shows Accelerated Growth
Schwab's latest January 2025 financial report revealed strong client engagement and asset growth. The company added $30.6 billion in core net new assets, reflecting a 75% year-over-year increase. Total client assets surged to $10.33 trillion, reinforcing Schwab’s position as one of the most dominant brokerage platforms. Trading activity remained robust, with 7.37 million daily average trades (DATS), well above analyst projections of 6.5 million. Schwab also onboarded 433,000 new brokerage accounts, an 18% increase from January 2024, signaling strong organic client acquisition.
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The company reduced supplemental funding by $3.7 billion, bringing its total down to $46.2 billion. This strategic deleveraging improves Schwab’s balance sheet, reducing reliance on high-cost borrowings. While transactional sweep cash declined by $19 billion to $399.6 billion, this is in line with Schwab’s plan to shift assets toward higher-yielding investment vehicles, which will support long-term revenue growth.
EPS Growth and Valuation: Where Does NYSE:SCHW Stand?
Analysts project Schwab’s earnings per share (EPS) to surge by approximately 30% annually over the next two years, reflecting significant profitability expansion. The latest estimates show Schwab is expected to post:
2025 EPS: $4.20 (30% YoY growth)
2026 EPS: $5.20 (23.8% YoY growth)
2027 EPS: $5.90 (13.5% YoY growth)
At a current share price of $79, Schwab is trading at just 15.1x 2025 forward EPS and 12.5x 2026 forward EPS. Compared to its historical P/E of 24x, this suggests a compelling upside opportunity for long-term investors. Schwab also maintains $7.2 billion in stock repurchase authorization, meaning further buybacks could enhance EPS growth and shareholder value.
Net Interest Margin Expansion: A Key Revenue Driver for Schwab
One of the biggest bullish catalysts for Schwab is the expected expansion in net interest margin (NIM). Several factors indicate this trend will favorably impact revenue growth:
Schwab is actively shifting client cash from lower-yielding sweep accounts to higher-yielding assets, boosting profitability per client dollar. The firm has significantly cut expensive short-term borrowing, lowering funding costs and increasing net interest revenue. As interest rates stabilize, deposit outflows should slow, improving Schwab’s cash retention and balance sheet efficiency.
Given that net interest revenue accounted for nearly 50% of Schwab’s total revenue in 2024, an improvement in NIM could meaningfully drive earnings expansion over the next two years.
Valuation Outlook: What is NYSE:SCHW’s Fair Price?
Using analyst EPS projections and historical valuation multiples, Schwab’s fair value can be estimated.
Applying a historical P/E of 24x, Schwab's price targets would be:
2025: $100.8 per share
2026: $124.8 per share
Assuming a more conservative 20x P/E, Schwab would still reach:
2025: $84 per share
2026: $104 per share
With a base case price target of $103 for the next 12 months, Schwab offers 28% upside potential from current levels.
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Risks: What Could Hold Back NYSE:SCHW’s Growth?
While Schwab is well-positioned for long-term growth, some risks remain.
A sharp decline in interest rates could compress net interest margins, impacting profitability. Schwab’s client cash migration to higher-yielding investments could reduce deposits, forcing Schwab to rely more on external funding. Regulatory changes affecting cash management and brokerage accounts could increase compliance costs and limit earnings potential. A prolonged stock market downturn may reduce trading activity, leading to lower revenue from brokerage fees and asset management services.
Despite these risks, Schwab’s strong asset base, diverse revenue streams, and aggressive cost management strategies position it well to navigate short-term headwinds while maintaining long-term growth potential.
Final Verdict: Is NYSE:SCHW a Buy, Hold, or Sell?
Schwab is currently trading at $79 per share, offering a significant upside for investors willing to look past short-term concerns. With TD Bank’s exit complete, Schwab can now focus on its core fundamentals, which remain strong. The company’s January 2025 results confirmed accelerating growth, while analysts project a 30% annual EPS increase through 2026.
With $7.2 billion still allocated for stock buybacks, Schwab is well-positioned to boost shareholder value and maintain strong EPS growth. Its net interest margin expansion strategy should further support revenue gains, reinforcing Schwab’s attractive valuation.
Schwab’s 12-month price target stands at $103, indicating 28% upside potential. With strong fundamentals, expanding profitability, and improving investor sentiment, Schwab remains a compelling long-term buy.
