SCHWAB CHARLES CORP (SCHW) stock intrinsic value fair value estimate & owner earnings analysis

Schwab earns money in two main ways: fees on the $11.9 trillion of client assets it holds and advises on (asset management and administration fees of $6.5 billion, trading revenue of $3.9 billion in 2025), and the spread between what it earns on client cash, margin loans, bank loans and securities and what it pays for funding (net interest revenue of $11.8 billion). Because borrowing and client deposits are the raw material of that spread, we value earnings after interest and do not subtract debt separately. Earning power. Profit available to common owners per share was $2.83 in 2021, $3.50 in 2022, $2.54 in 2023, $2.99 in 2024 and $4.65 in 2025. Stock compensation is already an expense inside net income, so it is counted once. The 2023 dip was the cash-sorting episode: clients moved idle cash into higher-yielding products and Schwab replaced it with expensive supplemental funding that peaked near $80 billion. That funding was cut by $44.8 billion in 2025 to $5.1 billion, and the net interest margin rose to 2.74% from 2.12%. We use 2025 as the starting level (net income to common of $8.4 billion, $4.84 on today's 1.74 billion diluted shares) because it is the first full year of the integrated TD Ameritrade platform with funding back to normal. Earlier years describe a different balance sheet or the funding squeeze. The first half of 2026 ($2.91 per share against $2.07 a year earlier; second quarter $1.54 against $1.08) shows that level holding and then some; we have not raised the starting level on it because trading volumes and market-driven fees were unusually strong. Growth path. Owner earnings grew 56% per share in 2025, but that was largely the funding normalization rather than something to repeat. The base case assumes 4% in the first year, below that, and fading to 2.5% by year ten. The growth credited is organic asset gathering, which has run steadily for decades through the 2008 bear market, 2022 and 2023: core net new assets were $519 billion in 2025, a 5.1% organic rate, and 4.7 million new accounts were opened. We credit less than that rate and taper it. We leave out equity-market appreciation, margin-loan growth beyond what assets support, share gains from competitors, new products, expense savings and buybacks as sources of growth. After year ten the story is a fee-and-spread franchise that has lasted over 50 years but faces demonstrated price compression (commissions went to zero in 2019), so earnings are assumed to fade 1% a year. What the cases say. Base: about $96 per share. It is the 2025 earnings level growing as described. Because lenders are paid from the spread before profit, there is no separate debt to subtract; the business is worth about $96 and the borrowings that fund it are already charged in earnings. Bear: about $42 per share. This case includes the downturn Schwab's own record shows. A repeat of the 2023 funding squeeze combined with an equity decline like 2008 (a 35% drop on $6.5 billion of asset-based fees is about $2.3 billion pre-tax, plus roughly $2 billion of extra funding cost) cuts earnings about 25% in year one and about 40% below 2025 for years two through five. Schwab's 2014 and 2015 net income was only $1.3 and $1.4 billion before reaching $3.7 billion in 2019, so a long low-earnings stretch has happened. Years six to ten grow just 2%, after which earnings fade 3% a year. Capital would hold: the consolidated Tier 1 leverage ratio was 9.3% at the end of 2025 under regulatory rules, so no dilution is assumed, but buybacks would stop. Business worth about $42; there is no separate debt to subtract. Bull: about $133 per share. Here the first-half-2026 earnings pace (about $5.80 a share) proves to be the right level, organic asset gathering continues at the 5% rate it achieved in 2025 for four years and then slows, and earnings stay flat after year ten. Business worth about $133, with funding already charged. What could make this wrong. The largest uncertainty is the spread: a second cash-sorting episode, or an unrealized-loss problem in the bond portfolio that forces expensive funding again, would hit earnings for years. Equity-market declines also reduce asset-based fees quickly. If 2025's trading and fee levels prove to be unusually high, the starting level would be roughly 10-15% lower, which still leaves a base value near $80. Margin-of-safety price. We are fairly but not fully sure of the earnings level: the funding repair is documented, but much of 2025 depended on strong markets and trading. The worst plausible outcome, a 2023-style funding squeeze during a bear market, would leave Schwab earning well under half of its recent profit for several years, but the structure survives it: regulatory capital is well above the minimum, margin loans are collateralized, and the franchise of 38.5 million brokerage accounts is sticky. If we are wrong about the normal level of net interest margin or about trading volumes, the shares are worth substantially less than the base but still more than the bear value. The price assumes a four-to-five-year holding period; during that period Schwab pays a $1.08 annual dividend that has been rising, and returns most of its remaining profit through buybacks ($7.3 billion in 2025). The margin-of-safety price is $38, under eight times the 2025 earnings level, a price from which the earnings, dividend and organic growth alone would imply the required return even without any change in valuation, and which sits below the value even the downturn case supports. Note: earlier figures for this company were produced on a different basis and are not comparable to these.