Schwab Earnings Meet Wall Street's Expectations

Third-quarter earnings rise to 15 cents a share from 12 cents a year earlier.
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Despite brokerage customers' stampede to low-fee online trading,

Charles Schwab


posted strong quarterly earnings Thursday, meeting Wall Street's expectations.

The company said third-quarter profits jumped 27% from a year ago. In early trading, the shares rose 1 1/4, or 4.5%, to 29 5/16.

For the third quarter ended Sept. 30, the brokerage reported net income of $125 million, or 15 cents a diluted share, on net revenue of $884 million. For the year-ago quarter, earnings were $98 million, or 12 cents a diluted share, on revenue of $705 million. Analysts surveyed by

First Call/Thomson Financial

expected the San Francisco-based company to earn 15 cents a share.

Like most brokerage houses, Schwab is rushing to cope with the booming popularity of online trading, which has stripped commissions and drained some business. The company's daily average revenue trades -- the number of trades it makes money for performing -- jumped 36% during the quarter. But commissions revenue -- the total amount of money the company makes for performing trades -- rose only 14%.

During the quarter, the company launched a package of services allowing investment managers to trade online for a fee.

"We remain convinced that the ability to deliver 'Clicks and Mortar' access -- to blend the power of the Internet with personal service to create a seamless customer experience -- is an essential part of redefining full-service investing," said David S. Pottruck, president and co-CEO, in a statement.

Sheldon Grodsky, who covers the stock for

Grodsky Associates

, said shrinking commissions could eventually hurt the company in a less frenzied market.

"I'm not sure in the long run that the online business is going to be good for them," said Grodsky, whose small brokerage hasn't done underwriting for its mammoth peer. "Sooner or later they'll be hit with a quarter where trades are going to be down."

Although Schwab is a "terrific company" that "is still doing quite well," Grodsky described his rating on the stock as a "sell as fast as you can" because the price, driven by Internet speculators, has hit "extraordinarily stupid levels." Schwab's price-to-earnings ratio is 47, well above the market average.

Amy Butte, who covers financial stocks for

Bear Stearns

, said the company's fundamentals were impressive. Listing strengths, Butte tossed online enterprise in with the company's overall health, citing net asset growth of 4%, well above the growth

Merrill Lynch


reported Tuesday.

Butte, whose firm also hasn't done underwriting for Schwab, has a buy rating on the stock.