Charles Schwab to Benefit From Rising Internet Rates, Market Share Gains in 2018: Stack Financial

January 22, 2018 — 4:58 PM EST

With the Federal Reserve expected to raise interest rates at least two times in 2018 and with competition growing in the online brokerage world, Charles Schwab is expected to benefit as it lands more clients and as its net interest margin grows.

That's according to Joe Laszewski, a senior portfolio manager at Stack Financial Management and contributing editor at InvestTech Research. In a report covered by Equities.com, Laszewski wrote that prospects look bright this year for The Charles Schwab Corporation (SCHW) thanks in large part to the current monetary environment. "As short-term interest rates continue to rise, Schwab will earn an incrementally greater net interest margin on its growing pool of interest-earning assets," wrote Laszewski. The portfolio manager said that net interest income at Schwab grew by close to 30% in 2017, marking its highest increase since 2010. While that pace of growth may be hard to continue, the portfolio manager believes that Charles Schwab will be a "primary benefactor" should the Fed continue to raise rates this year.

Last week, the San Francisco-based discount brokerage served up results for the fourth quarter and full year 2017 in which it saw double-digit growth in revenue and new customers. Peter Crawford, chief financial officer at Charles Schwab, noted that the company saw net interest revenue increase 29% in 2017 to $4.3 billion thanks to rising interest rates and increasing cash balances on the part of its customers. (Check out more about this iconic brokerage in the Charles Schwab review.)

On top of benefiting from a rising interest rate environment, Laszewski said Schwab has good organic growth prospects that none of its rivals can match. Its long-term push to lower trading costs, boost technology investments, lower exchange-traded fund fees and add more advice to its digital platforms are all drivers of growth for the company. "Schwab’s scale and efficiency are competitive advantages that allow the company to grow revenues by taking market share away from smaller competitors," wrote Laszewski. He noted that, in a sector defined by value-oriented investment opportunities, Schwab stands out as a growth story that is "well positioned" to continue growing market share.

[Check out Investopedia's Ally Invest review to learn more about this low-cost broker with powerful charting tools.]

For all of 2017, Schwab said that it added 1.4 million new accounts, with its Schwab retail business increasing 49% from 2016. Of those new retail accounts, the brokerage said that 54% came from households with investors that were age 40 or younger. Core net new assets for the year were a record $198.6 billion, a 58% increase year over year and equating to a 7% organic growth rate. Retail and advisor services net new assets jumped 57% and 59%, respectively, when compared with 2016. Total client assets as of the end of 2017 stood at $3.36 trillion, which is up 21% from the end of 2016.