PALI Research Initiates Coverage on Schwab (SCHW) with a Neutral; Looking for Cheaper Valuation

September 29, 2009 8:55 AM EDT

PALI Research initiates coverage on Schwab (Nasdaq: SCHW) with a Neutral

PALI analyst says, "We are drawn to the strengths of the SCHW business model, the ability to attract assets at a superior rate, a largely-fee based revenue model that produces steady growth, good expense discipline, and strong margins and returns. But we also have some concerns, namely that it is a little too early in the cycle (particularly on the rate side) to put new money to work in SCHW. Also, we wonder if SCHW is reaching a size where growth becomes more challenging over the longer-term (it takes over $10b in net new assets to generate $0.01 in EPS according to our calculations), particularly if the company does not have a rising market tailwind at its back, which is more of a question mark from current levels in our view.

"In the meantime, yield compression and fee waivers will incrementally pressure earnings...A bear market safety play. We do see SCHW as a safety play in a market pullback given the sustainability of its fundamentals (thanks to >70% of revenues from fee-based or spread sources), particularly relative to most other financials and other more active online brokers such as TD Ameritrade (Nasdaq: AMTD)."

To see more analyst ratings on SCHW Click Here.

The Charles Schwab Corporation provides securities brokerage, banking, and related financial services to individual, institutional, and corporate clients.

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