What is SCHW's Intrinsic value?

Charles Schwab Corp (SCHW) Intrinsic Value Analysis

Executive Summary

As of June 8, 2025, Charles Schwab Corp's estimated intrinsic value ranges from $41.77 to $80.67 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $41.77 -52.7%
Dividend Discount Model (Multi-Stage) $70.08 -20.6%
Dividend Discount Model (Stable) $80.67 -8.6%

Is Charles Schwab Corp (SCHW) undervalued or overvalued?

With the current market price at $88.25, the stock appears to be significantly overvalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Charles Schwab Corp's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.58 1.03
Cost of equity 6.5% 10.6%
Cost of debt 4.0% 12.4%
Tax rate 23.1% 23.4%
Debt/Equity ratio 1.9 1.9
After-tax WACC 4.3% 9.9%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 7.1% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $25,999 (FY12-2024) to $55,283 (FY12-2034)
  • Net profit margin expansion from 23% to 28%
  • Capital expenditures maintained at approximately 4% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $(1,234) $246,816M 85.4%
10-Year Growth $42 $326,945M 73.3%
5-Year EBITDA $(1,234) $212,219M 83.1%
10-Year EBITDA $20 $286,687M 69.6%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 35.6%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 8.6%
  • Long-term growth rate: 3.5%
  • Fair value: $70.08 (-20.6% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 10.6% (Low) to 6.5% (High)
  • Long-term growth rate: 3.0% (Low) to 4.0% (High)
  • Fair value range: $33 to $128
  • Selected fair value: $80.67 (-8.6% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $160348M
Enterprise Value $411397M
Trailing P/E 24.71
Forward P/E 25.29
Trailing EV/EBITDA 19.00
Current Dividend Yield 143.94%
Dividend Growth Rate (5Y) 15.46%
Debt-to-Equity Ratio 1.90

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 46% $12.53
Dividend Discount Model (Multi-Stage) 31% $14.02
Dividend Discount Model (Stable) 23% $12.10
Weighted Average 100% $59.46

Investment Conclusion

Based on our comprehensive valuation analysis, Charles Schwab Corp's weighted average intrinsic value is $59.46, which is approximately 32.6% below the current market price of $88.25.

Key investment considerations:

  • Strong projected earnings growth (23% to 28% margin)
  • Consistent cash flow generation
  • Historical dividend growth of 15.46%

Given these factors, we believe Charles Schwab Corp is currently significantly overvalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.