OXPS Optionsxpress Holdings, Inc. (MM)

Charles Schwab Corp.(SCHW) released its Monthly Activity Report for July 2011, recording an 11% improvement in client activity compared with June 2011 and July 2010. The company’s daily average trades stood at 404,100 during the month under review.

Similarly, Schwab registered an increase in new assets, with a net inflow of $9.9 billion in July as against a net inflow of $6.5 billion in June 2011 and 6.2 billion in July 2010. Also, the company’s client assets totaled $1.65 trillion at July end, flat with the prior month but up 16% from the prior-year month.

However, Schwab recorded opening of 56,000 brokerage accounts in July 2011, down 8% from June 2011 but up 6% from July 2010. This marked the slowest trading month since October 2010 when only 60,000 new brokerage accounts were opened.

At the end of the reported month, Schwab’s clients’ active brokerage accounts totaled 8.152 million, flat sequentially but up 3% year over year. Similarly, clients’ banking accounts climbed 1% sequentially and 17% year over year to 754,000. However, the number of corporate retirement plan participants remained on a par with June 2011, but declined 2% from July 2010 to 1,443 million.

We expect raising money market funds to hurt Schwab financially as these funds are less profitable than stock market funds. Moreover, a significantly low interest rate environment would further compel the company to waive fees. However, after the completion of the optionsXpress Holdings Inc. (OXPS) acquisition in the third quarter of 2011, the company’s top line will expectedly benefit from increased derivative trading. Also, capital spending initiatives would augment further revenue growth.

Schwab currently retains a Zacks # 4 Rank, which translates into a short-term 'Sell' rating. However, considering the fundamentals, we maintain a long-term “Neutral” recommendation on the stock.

 
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