Trade of the Day: Charles Schwab Corp (NYSE:SCHW) — This is the parent holding company for one of the largest brokerage firms in the U.S., which primarily serves retail clients. It will have increased its earnings for four straight years if it makes its 2016 earnings target of $1.28, up from $1.03 in 2015.
Standard & Poor’s estimates earnings of $1.50 in 2017.
The company depends upon retail commission income but is also dependent on the spread in short-term interest rates. (In 2015 nearly 40% of its top line came from net interest income.) Thus, the stock has been singled out by analysts as a chief beneficiary of a raise in short-term rates by the Federal Reserve.
Last week, S&P raised their 12-month target by $2 to $37 and initiated an earnings estimate of $1.70 for 2018. Their increases were encouraged by Schwab’s third-quarter earnings of 35 cents, up from their estimate of 32 cents, and a 20% increase in revenue growth. The firm also posted a 33% increase in net interest income.
Early in August, SCHW broke from a right triangle that began forming with a top above $34.50 last December. The full formation with two bottom points (about $22 in February and $24 in July) broke through resistance in August. The breakout occurred before an apex to the triangle formed, a very positive signal, and immediately began establishing a bull channel with current support at $32 and resistance at $34.
Two of my CBR Buys highlighted the advance, the second occurring last week, preceded by a Golden Cross (LT buy) in September. The approximate middle of the channel, which could cause minor resistance, is indicated by a red broken line.
Note: Generally the longer it takes a right triangle to form, the smaller the ultimate advance. Thus I believe that SCHW will achieve its target of $38 in Q1 2017, rewarding those who buy it now with an 18% gain early in the new year.
