Schwab reported their calendar Q2 ’25 financial results last Friday morning, July 18th, and it first looked like the quarter results were not a big deal, as net revenue beat by 2% ($5.85 actual vs %.73 est), and EPS beat by 4%, ($1.14 actual vs $1.10 est) but after digging into the guts of the report, the operating margin rose 900 bp’s y-o-y, back over 50%, which was the significant statistical surprise.
Schwab expense discipline continues to be a strength of the financial giant. The big savings came from compensation, which fell 8% sequentially to $1.54 billion versus the previous quarter’s $1.67, although the same expense line rose 7% y-o-y.
The other stat that jumped out was the net interest margin or NIM, which rose 62 basis points y-o-y. The last time Schwab’s net interest margin jumped like that was the March ’23 quarter, when it rose 81 bp’s y-o-y to 2.19%.
Net new assets gathered in Q2 ’24 was $80 bl, up 4% y-o-y.
Here’s the 2nd quarter preview of Schwab’s earnings posted on this blog last week.
As a Schwab advisor, the support teams at Schwab that assist advisors are always helpful and positive. They are a solid group and have saved my backside numerous times on paperwork, and such. The support group is also good for a light-hearted laugh after I’ve done something extraordinarily stupid, which I do with alarming regularity. They have a tough job and no doubt many advisors are grateful for their assistance.
All in, for the quarter, Schwab net revenue rose 25%, operating income rose 52% and EPS rose 56%. When Schwab can grow net revenue 25% y-o-y, and only grow expenses 5% for the same period, it’s going to “lever” operating income and EPS.
Here’s the EPS revisions for Schwab both pre and post earnings:
Readers should note Schwab’s EPS revisions between July 15th and July 21, and then look at the April ’25 EPS versus the March ’25 EPS. Granted, investors were still in the throes of tariff liberation day, but the EPS revisions between last week and today for Schwab’s EPS are markedly higher post-earnings.
Valuation:
Schwab closed at $96.25 on Monday, July 21, ’25, resulting in the stock trading at 21x and 18x expected EPS today of $4.58 and $5.39, up sharply after last Friday, July 18th’s results.
The stock remains cheap on a PE-to-growth basis, and with the close today, broke out of that 3-year consolidation starting in late 2021.
This blog’s fair value on Schwab’s stock was raised to $135 after seeing the EPS revisions. Morningstar now has a $105 fair value estimate after seeing last Friday’s results.
Summary / conclusion:
Schwab’s President and CEO Rick Wurster, who was appointed to the CEO job in ’24 (I think) was on CNBC today noted that Schwab plans to offer spot bitcoin and ether trading. In my opinion that’s a smart move by Schwab (in my opinion) to at least start to offer the trading platform and did a toe in the bitcoin and crypto water.
The ground has really shifted with the passing of the Genius Act, but – as alluded to in Schwab earning’s preview – the fact that Amazon and Walmart were considering utilizing stablecoin to reduce their costs of credit card interchange fees. (To be frank with readers I’m entirely how that gets implemented or the logistics behind such a move, but the payment processors like Visa and Mastercard fell sharply on that news, since it means that their revenue will be disrupted, which got my attention.)
Schwab’s stock is still cheap here in the $90’s. It’s not an easy business model though. The zero interest rates from 2008 to 2016 was a tough period for Schwab and then zero rates again after 2020, followed by a rapid rise in the fed funds rate in 2022 really throws a wrench into the business model.
Hopefully Schwab will see a few years of yield curve stability, and a normally-sloped yield curve.
The EPS revisions have made me more confident in the stock, than even when the preview was written, but Schwab has long been a sizable position for clients.
None of this is advice or a recommendation, but only an opinion. Past performance is no guarantee of future results. None of the above information may be updated, and even if it is updated, may not be done so in a timely fashion.
Thanks for reading.