Charles Schwab (SCHW)

Charles Schwab is the largest custodian for brokerage and independent investment advisors in the US: $13.08 trillion in client assets, 39.8 million active brokerage accounts, and a complete operating recovery from the 2022-2023 cash sorting crisis (net interest margin 1.98% → 2.74% → 3.00% in the second quarter of 2026, with trailing-twelve-month net revenue at $26,025 million). The moat combines scale with the switching costs of a custody relationship. It is an exceptional-quality business, just emerging from its worst cycle of the decade.

A bank/brokerage is valued on equity — normalized P/E on common earnings plus P/tangible book — never on enterprise value: deposits and bank loans are funding. Trailing-twelve-month common earnings are $9,722 million (net income less preferred dividends), after a +54% rebound in 2025 that is not fully extrapolated: the base case projects common earnings growing ~14%/year initially (capturing the continuation of the already-underway net interest margin recovery, guided by the company itself) decelerating to ~7%/year by year 5.

At $113, that implies 20× trailing-twelve-month earnings (and an elevated P/tangible book, 8×, reflecting that Schwab is an asset-light custody business with regulatory capital well below its earnings power — book value understates the franchise). The base case combines that normalized earnings figure with a buyback that reduces shares ~2%/year (the sustainable pace, not the TTM pace elevated by the buyback tied to the TD Bank secondary offering) and a disciplined exit multiple of 12.5x P/E — within the reference band for an investment bank/brokerage (10-14x), well below today's 20×. That yields ~$125/share → a total return of +4%/year.

No margin of safety: at this price capital is preserved, but it is not bought below its value. At $113, near 52-week highs ($83.96-$107.50), Schwab is an exceptional-quality business finishing its recovery from its worst crisis in a decade, but the price already reflects much of that recovery. The verdict is Preserves value: normalizing the pace of earnings growth (without extrapolating the full 2025 rebound) and with a disciplined exit multiple, the expected return comes out modest. No clear source of discount is identified — no forced sellers, no recent event that hit it, quite the opposite, the recovery is already visible in the price — so the margin of safety at this price is limited.

Three things. The rate cycle and client cash sorting (the central disconfirmer): the 2022-2023 crisis showed that a rapid rate hike reactivates cash migration toward higher-yielding alternatives, forcing expensive funding; a repeat would hit the net interest margin that has just recovered. Tangible common capital is in mechanical recovery — the AOCI adjustment improved from -$14,839 million (2024) to -$10,979 million (2025) as low-yield bonds originated in 2020-2022 mature — and that unwind, if reversed by a new rate hike, would depress tangible capital again. And the multiple: at ~7.8x tangible book value and near 52-week highs, any earnings or cycle disappointment would compress it sharply.