Follow Up: Schwab Catches Its 2nd Wind
Online brokerage Charles Schwab was a veritable cash cow during the go-go, even-your-babysitter-is-a-day trader days of the late 90s.After the seismic bubble burst, a customer exodus, and a poorly timed/executed aquisition spree -- Schwab stock (SCH) took a nosedive.
Suddenly, with the stock cratering below $10 a share, all eyes were on
When Schwab's board ousted Pottruck in the summer of 2004 and founder Charles Schwab took the helm (again), we couldn't help but sit up & take notice.
On 9/19, we upgraded Schwab from a sell to a strong buy rating.
At the time of our call, SCH shares were trading at roughly $13 a share.
Today, shares have gravitated above the $15 dollar mark.
We still think SCH is a great turnaround play.
Earlier this month, Schwab posted earnings of $207 million, its best quarterly results in more than five years.
SCH no longer eludes most analyst's radar screens -- Friedman Billings Ramsey (FBR) upgraded the stock last month.
Citigroup (C) analyst Prashant Bhatia, one of the most bullish analysts on the stock, thinks Schwab is "entering a growth phase" that justifies as high as a 30% premium to other asset managers.
Another positive: those hyperrealistic new "Talk to Chuck" commercials seem to be working.
We think 2006 will be a turnaround year for Schwab.
But in order to get there, they'll have to generate new accounts and minimize customer acquisition costs while maximizing revenue from assets brought under management.
SCH's competitive advantage is its franchise/brand value; it's arguably stronger than that of rivals E-Trade (ET) and Ameritrade (AMTD).
As the firm's biggest shareholder, it's in Chuck's best interest that Schwab win the price wars.
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