Charles Schwab Earnings: Revenue Downturn Showing Signs of Stabilization; Shares Undervalued

In the medium to long term, Charles Schwab should see significant growth in earnings, and third-quarter results show stabilization in revenue that has recently been trending downward. Charles Schwab reported net income to common shareholders of $1.02 billion, or $0.56 per diluted share, on $4.61 billion of net revenue. Net income was affected by $279 million of restructuring charges in the quarter, and adjusted EPS that excludes restructuring, acquisition, and certain amortization costs was $0.77. Net revenue decreased 16% from the prior year's record revenue quarter, mostly due to a nearly $700 million decline in net interest income as funding costs have increased. Net revenue declined only 1% from the previous quarter, which is a significant deceleration of the revenue declines of 7% to 9% the prior two quarters. We don't anticipate making a material change to our $80 fair value estimate for wide-moat Charles Schwab and assess shares are undervalued.