Schwab: Long-Term Idea with Limited Downside

May 15, 2012

A New York-based portfolio manager likes Charles Schwab (NYSE: SCHW, $12.94) at this level.  The company’s valuation is depressed due to the low interest rate environment, but there is significant upside for investors that are not looking for a quick trade.  The presenter assumes interest rates will be compressed through 2014 and won’t rise till 2015.  Based on his normalized earnings estimate of $1.45/share and an 18x multiple, the stock’s intrinsic value is $21.  The downside is limited at roughly $12, based on 2x 2011 book or 19x 2012 EPS.

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