Why Charles Schwab Is Still Acting Like a Growth Stock

There's been significant disruptionin the financial brokerage industry with Robinhood's incursion and no-fee trades going mainstream, but Charles Schwab (SCHW -0.78%) has continued to grow with the help of its recent acquisition of TD Ameritrade. In this episode of "Beat and Raise" recorded on Jan. 20, Fool contributors Toby Bordelon and Brian Withers discuss why Charles Schwab continues to put up strong growth even in a mostly mature industry.

Toby Bordelon: Yes. Charles Schwab.

Brian Withers: A little finance with your alcohol today, Toby.

Toby Bordelon: They are actually relatively little compared to some of the other big boys, I suppose we say, but not that little where I think about it, $173 billion market cap for Charles Schwab. Popular brokerage, I'm assuming many of our viewers probably use Schwab. Some of them may be using them and not realize it because they just acquired TD Ameritrade. That acquisition closed almost a year ago now. They're still integrating it they are still suffering through these but same company now, both of those brokerages are under the same umbrella. This is part of why I'm giving you full-year numbers for this. Part of why you're seeing big increase like that could be a percent jump in revenue because this is the first full-year they've incorporated TD Ameritrade versus prior year. Big jump, $18.5 billion for the year in revenue. For the quarter, it was $4.7 billion, up 13 percent versus 50 percent for the year. Net income, $5.86 billion for the year, Brian. up 77 percent.

Brian Withers: Highly profitable company, wow.

Toby Bordelon: Very profitable company, 1.6 billion in net income for the quarter up 33 percent. Now, earnings-per-share for the year are up 33 percent per share for the quarter was 76 cents per share up also 33 percent. Obviously, it looks like there is an increase in share count there. If you see net income up 77 percent, but EPS only up about 33 percent from that merger they issued in stocks, there's a lot more stock outstanding now, what's going on there? Technically, there was a slight miss earnings and revenue, but I'm calling it a meet because very close. If within the range, I would call meeting expectations there.

The TDA merger, they closed in October of last year. They are still integrating that, but it's going well. That's one of the highlights. The integration seems to be going well. I got to call a couple months ago for my account rep in TD Ameritrade just laying out, oh, so then another year, then we should be merging the systems and it will be wonderful and all that stuff. We'll see when that happens. But they're taking their time trying to get the stride. They don't want to screw up that flipping of a switch because then you irritate a lot of people. You need it to be smooth.

This is actually-I'm impressed by the timing of this release. This is for the quarter that ended on December 31, and this is the fiscal year 18 days later, they're giving us information for the full fiscal year and for the quarter. Under SEC rules, you have 35 days to file your quarterly report and 60 days to file the annual report. This is not the full annual report, we do not have that yet. It has to be audited. There's no way you can audit that in three weeks. But many companies will wait longer and we're going to see that we're going to have a lot of earnings throughout this season that are a little bit later than your typical quarter because of that additional lags, we're getting that full annual report out and audited and all that. I do appreciate the Charles Schwab gives us very well formatted, well produced financial statements, unaudited at this point yet, but less than three weeks after the fiscal year is over. They're giving us that information and that's really nice. Even though we don't have a lot of commentary, we do not audit yet things could change. It's still nice to see it. They're confident enough in their system they can say, we can give you this now, even though the auditors aren't done with it. That's great. I just want to compliment on that.

But what that means, we don't have a lot of management commentary yet. We don't have a lot of-it hasn't been fleshed out. This is an early stage report here.

But looking pretty good, assets under management, $8.14 trillion, a 22 percent increase from the last year. That's a record, so growing, getting bigger, in part by acquisition, but getting much, much bigger. People keep coming to them. I say coming outlook is coming soon maybe they do have an investor update coming on January 28th so we're probably going to learn more from management there. They may give us some more guidance to what they're expecting for the full-year, including more details, that integration with TDA.

But overall, Brian, I liked this quarter. I like the quarter. Concerns you might think about is what if the market downturn we're seeing in the market right now continues? Does that dampen enthusiasm for investing among individual investors that hurt them? They should benefit with interest rates in theory but as interest rates increase. But if inflation persists, if the economy takes a little bit of a tumble there or cools down, does that mean people save less and invest less? Does that hurt their bottom line? There's things to be aware of, those are not under their control.

What I'm saying here is it might be a concern of  business or things that they can't control is just economic cycles and that what they can control I like what I see. I think they're doing fairly well, they're continuing to grow the top line and the bottom line. Great business, not a lot of negative things to say about them.

Brian Withers: I'm super-impressed. We've had over the past 12, 18 months, 24 months, a ton of FinTechs come about. SoFi and all these others that are being app friendly and very tech focused on the younger population. But I know Charles Schwab is spending a lot of money doing that and they have a great app. I know a number of Fools use it. I think they are keeping pace with even a bunch of these little competitors that are coming up. It's nice to see their overall assets under management solid 22 percent.

Toby Bordelon: Very solid. They are keeping pace. They do have a reputation for great customer service they pride themselves on. Looking at Robinhood stock price in comparison and you see what's going on there. They have been doing this for a long time and I think some of the upstarts. They're right there and they are very innovative too. They were one of the first to say no more commissions.

Brian Withers: Yes, they were.

Toby Bordelon: No more commissions. If you have the fullness of their services without paying commissions, is there a much incentive to go to someone like Robinhood or to an upstart? I don't know why you would leave.

Brian Withers: If it's easy to use, and you have all the services that you need.

Toby Bordelon: They are full-service too. They got a bank side as well, they can offer you all kinds of products and services. They can offer you financial planning if you want it. They can offer you estate planning. They can do trust accounts for you, all kinds of stuff. It's a solid business doing very, very well from what I can see.

Brian Withers: It sounds like you got a job as Charles Schwab spokesman if this Fool thing doesn't work out for you.

Toby Bordelon: Yeah. Hook me up with, Charles Schwab. I will be happy to help you out.