Is Charles Schwab Stock Undervalued?

Is Charles Schwab Stock Undervalued?

Charles Schwab stock (NYSE: SCHW) has gained 42% YTD, and at its current price of $74 per share, it is almost 10% below its fair value of $82 – Trefis' estimate for Charles Schwab's valuation. The brokerage giant recently released its second-quarter 2021 results, with revenues and earnings beating the consensus estimates. It reported net revenues of $4. 5 billion – 85% more than the year-ago period, mainly driven by a 40% growth in net interest income coupled with a 4x jump in trading revenues. Further, asset management and administration fees recorded a 31% y-o-y growth in the quarter. Notably, the firm completed the acquisition of TD Ameritrade in October 2020, which is the main reason behind the spike in revenues. The company's revenues of $11. 7 billion in 2020 were 9% higher than the 2019 figure. The growth was primarily achieved in the fourth quarter due to the TD Ameritrade acquisition. Further, SCHW reported a revenue growth of 80% y-o-y in its first quarter of 2021, primarily driven by higher net interest income and trading revenues. The same trend continued in the second quarter of 2021 also. Notably, Charles Schwab's interest-earning assets grew 41% between December 2020 and June