Charles Schwab Bearish Sentiment Low, But Not an Outperformer in the Sector

In a recent IHS Markit report, Charles Schwab Corp. (SCHW​) gets a positive rating on most fronts – excluding its performance to its rivals. The investment research firm, which late last month downgraded Schwab to negative from neutral, said perception of Charles Schwab’s creditworthiness is positive, bearish sentiment is low and the economic “output” in its sector is expanding. Still, when looking at it compared to the financial sector as a whole, Schwab's rating was below its peers.

While Schwab’s stock is up close to 10% so far this year, it’s main rival is doing better from a trading perspective. E*Trade (ETFC​) is up more than 19% since the start of 2017.  Last week Schwab weighed in with third-quarter results that were mixed, beating on the EPS front but posting revenue that was short of Wall Street estimates. For the three months ended in September, the discount broker reported earnings per share of $0.42 and revenue of $2.165 billion.

Analysts, according to Zacks Investment Research, had expected the San Francisco-based brokerage firm to report earnings of $0.41 a share and revenue of $2.9 billion. Net interest revenue increased 28% to $1.08 billion while revenue from asset management fees jumped 8% to $861 million. During the quarter Schwab was able to open 216,000 new retail brokerage accounts, which is up 29% from last year’s third quarter.  Total client assets increased 17% to $3.18 trillion and core net new assets jumped 72% to $51.6 billion. On the negative side, trading revenue declined 21% to $151 million.

According to IHS Markit, short interest for the stock is currently low. The research firm said that fewer than 5% of shares are betting the stock will go lower. “The last change in the short interest score occurred more than 1 month ago and implies that there has been little change in sentiment among investors who seek to profit from falling equity prices,” according to the report. As for ETF activity, the firm found that net inflows into ETFs that own shares of Charles Schwab were neutral at $4.14 billion during the past month. IHS Markit also gave the company a positive rank for creditworthiness with credit default swap spread in the middle of the range over the past three years. As of midday, Charles Schwab were trading up $0.44 a share or 1.17% to $44.91.