The Charles Schwab Corporation (NYSE: $SCHW) released its full-year 2023 results on Wednesday, January 17, 2024. The report states that Q4 net income was $1 billion, a huge drop compared to the $2 billion reported in the same period last year. Net income for FY23 was $5.1 billion, compared to the $7.2 billion reported in the previous year.
Details from Schwab Full Year Report
According to the full-year report, Charles Schwab had a robust fourth quarter. Its earnings per share and revenue in the quarter exceeded analysts’ predictions. However, revenue was down significantly compared to the same period last year.
The company’s client-centered approach paid off, evidenced by the client’s assets and accounts growth. Schwab also revealed that technological enhancements and expanding services helped it perform better than expected.
However, the company saw a net revenue drop of 19% in the quarter. In Q4, Schwab saw net revenues of $4.459 billion, a notable decline from the $5.497 reported in the previous quarter. For the full year, Charles Schwab saw a 9% drop in revenue from the $20.762 billion reported in FY22 to $18.837 billion.
The company’s diluted earnings per share was also down at $0.51, missing the analysts’ prediction of $0.64. It represented a 47% decline from the 2022 Q4 figure of $0.97. Its full-year diluted EPS was down 27% at $2.54, compared to the $3.50 reported in FY22.
Company Outlook
Charles Schwab’s leadership reiterated their commitment to the client-centric approach and improved operational efficiency despite economic headwinds. In 2023, the company’s approach helped it attract $306 billion in net new assets, with $43 billion in December 2023 alone. That brought the company’s clients’ assets to a new record of $8.51 trillion. It also welcomed 977,000 new retail households. Additionally, it added 315 advisors in transition. In total, the firm now has 34.8 million accounts.
TDAmeritrade Integration
The full-year report also discussed the TD Ameritrade (TDA) integration. Charles Schwab acquired TDA in 2020. They embarked on a transition process where the TDA accounts would be moved into Schwab.
According to Schwab’s CEO Walt Bettinger, their main objective, coming into 2023, was to convert all TDA accounts successfully. He noted that they had transitioned around 90% of all client assets as of December 31, 2023, without major disruptions. However, he stated that there had been some minor issues, most of which were promptly addressed.
Efforts to Improve Efficiency
Bettinger also discussed efforts to improve efficiency at Schwab. He stated they had cut their workforce by around 6% as part of that effort. They had identified at least $500 million in cost-saving measures beyond the Ameritrade integration. The efforts by Schwab are designed to drive long-term profitability and strengthen the company’s market position.
Schwab Stock Tumbles
While Schwab reported some positive numbers in its full-year report, they were not enough to sway skeptics. Charles Schwab’s (SCHW) stock was down approximately 2.46% during the early afternoon trading session. It was trading at around $62.76 as of early noon on January 17, 2024.
A major reason for the drop in stock price is the huge drop in full-year revenue. Like many financial institutions, Charles Schwab has offered higher interest rates to entice depositors to stay. In 2023, the company paid an average of 1.37% on deposits, compared to just 0.46% in the previous year.
Schwab also borrowed from the Federal Home Loan Bank in the first half of 2023 to supplement its funding sources, paying $423 million in interest. That was four times higher than the previous year. The firm’s move saw its net interest revenue fall 30% to $2.13 billion in Q4 2023. In 2023, Schwab stock fell 17%, compared to the S&P 500, which saw a 24% gain throughout the year.
Stock Forecast: $SCHW
Despite the recent drop in revenue, stock analysts are bullish about SCHW stock; they give it a buy rating. Analysts have given the stock a wide target range with a high of $97 and a low of $51. Their average target for the stock is $72.71, a 15.95% upside.
Should You Buy Schwab Stock?
Schwab stock is currently trading at a price-to-earnings ratio of 20.92. Many analysts expect the firm’s financial situation to improve as the cost-cutting measures implemented throughout 2023 reflect on its balance sheet. While there are still economic headwinds ahead, Schwab should benefit from the pause to aggressive interest rate hikes by the Federal Reserve. As such, the analysts’ bullish sentiment on SCHW stock is accurate.
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