SCHW

We rate SCHWAB CHARLES CORP (SCHW) as a Reduce with a composite score of 41.6/100 at a current price of $93.12. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in stability (59th percentile) and momentum (55th percentile), which together account for the majority of the composite score. Offsetting weakness in quality (25th percentile) and investment (30th percentile) tempers our overall conviction. We assign a No Moat rating (32/100), High uncertainty, and Poor capital allocation.

Key items to watch: balance sheet deleveraging progress; sustainability of the current growth rate. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

SCHWAB CHARLES CORP holds a top-quartile position (#0 of 50) within the Finance, Insurance, And Real Estate sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 41.6/100 places it at rank #3333 in our full 7,333-stock universe. With a $173.3B market capitalization, SCHWAB CHARLES CORP operates at meaningful scale within the Finance, Insurance, And Real Estate sector, providing competitive advantages in distribution, procurement, and customer reach.

Revenue is growing at 31%, though momentum at the 55th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 0% (-76.5pp vs sector) narrow to operating margins of 45% (+27.7pp vs sector) and net margins of 34.5%, yielding a gross-to-net conversion rate of N/A%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $93.12, SCHWAB CHARLES CORP is trading at a premium to fundamental value. Our value factor score of 33/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The premium valuation implies the market is pricing in significant future growth or quality improvements that are not yet fully reflected in current fundamentals.

The stock currently trades at a P/E of 21.4x (a 80% premium to the sector median of 11.9x), EV/EBITDA of 16.5x (at a premium), P/B of 3.4x, P/S of 7.5x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis finds only partially justified by current fundamentals.

We assign a High uncertainty rating to SCHWAB CHARLES CORP. Key risk factors include significant leverage (842% debt-to-equity), weak quality scores (25th percentile). The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: significant leverage (842% debt-to-equity); weak quality scores (25th percentile). Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 59th percentile and quality factor at the 25th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: large-cap scale ($173.3B) provides resilience. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile warrants caution and disciplined position management.

We rate SCHWAB CHARLES CORP's capital allocation as Poor. Key concerns include elevated leverage (842% D/E), weak asset returns (ROA 1.7%). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — SCHWAB CHARLES CORP significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, SCHWAB CHARLES CORP receives a Reduce rating with a composite score of 41.6/100 (rank #3333 of 7,333). Our quantitative framework assigns a No Moat (32/100, trend: stable), High uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 40/100.

Our analysis does not support a constructive view on SCHWAB CHARLES CORP at this time. The combination of limited competitive advantages, high uncertainty, and poor capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.