Charles Schwab's Revenue Growth Tempered by Competition, Industry Price Cuts: Trefis

December 27, 2017 — 4:20 PM EST

Charles Schwab has seen revenue grow 16% in the three reported quarters of this year. But that "impressive" revenue growth and a stock that is ending the year up in the double digits is being tempered by cut-throat competition and price cuts on the part of Schwab and its rivals.

That's according to Trefis, a platform created by a team of MIT engineers and Wall Street analysts that helps investors understand how companies' products affect share prices. Trefis maintains a price target of $42 per share on The Charles Schwab Corporation (SCHW). That's about 20% below where the stock is currently trading. Recently, shares of the San Francisco-based discount brokerage were trading down $0.06, or 0.12%, to $51.81. For the year, shares are up 24%.

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According to Trefis, Schwab's focus on innovating when it comes to financial products and attention to customer support appears to be working, with the discount brokerage seeing 12% growth in asset management fees. "Over the past couple of years, customer demand for financial expertise has grown. Amid uncertain market conditions, Schwab has paid special attention to its customers with financial advisers assisting them on an individual basis," wrote Trefis in a research report. "Additionally, the company continues to develop innovative financial products to suit its customers. It is the among the top 5 ETF providers in the U.S."

Morningstar, which tracks inflows and outflows into mutual funds and ETFs, recently said that Schwab has $24.3 billion in new net ETF assets through November 2017. That marks roughly 30% year-over-year growth. The firm's Schwab Intelligent Platform, the robo-advisory service it launched back in 2015, is resonating with investors as well thanks to zero advisory fees and enhanced customer support. Trefis said this has resulted in the unit having more than $21 billion in assets under management. Trefis also noted that Schwab's asset base has increased by 15% in October and November and that the trend is likely to spill over into the current month. As a result, it expects "significant growth in this segment's quarterly revenue," wrote Trefis.

Still, despite all the wins for Schwab this year, Trefis said the industry-wide decline in trading commissions and the ongoing threat from rival discount brokerages have weighed on its trading revenue and its growth potential. According Trefis, Schwab's move to cut commissions on each trade by close to 40% earlier this year has resulted in a dip in trading revenues of greater than 20% through the third quarter of 2017. Some of the losses were offset by improving marco conditions that boosted trading volumes by 8%. Trefis noted that trading volumes jumped 18% in October and November and that trading volume growth should be similar in December, providing a cushion from the blow of declining commissions.