The market is too pessimistic about growth in customer funding. I initiate Buy with a $94.02 twelve-month target, expecting larger cash and borrowing balances to lift earnings even as trading activity cools.
Key points
- $3.03 a share is my 2027 earnings estimate, excluding currency and investment marks.
- 25% growth in 2027 accounts can support financing income even as trading slows.
- $94.02 a share is my twelve-month target; initiate Buy.
The call
The market is too pessimistic about customer funding. At my retained valuation of 31 times annual earnings, today's price requires $2.67 a share, essentially September's annualized adjusted earnings. That means roughly flat revenue at a 77% pretax margin, the share of revenue left before taxes.
Customer funding is growing faster than tradingSource: October 15, 2026 earnings release; Q3 year-over-year growth, September-end balances.
I expect funding growth to outweigh quieter trading. My 2027 model grows interest income excluding securities lending by 25% and commissions by 20%, while cutting securities-lending income 15% from September's annualized level. Smaller accounts still help: published cash terms pay nothing on the first $10,000. Recent market underperformance argues against a richer multiple.
Valuation
| My 2027 model | Estimate |
|---|
| Net revenue | $8.52 billion |
| Pretax margin | 77% |
| Adjusted earnings | $3.03 a share |
| Brokerage earnings multiple | 25 times |
| Global platform premium | 6 times |
| Twelve-month target | $94.02 a share |
The combined 31-times multiple preserves today's annualized earnings valuation rather than demanding expansion. The platform premium is worth $18.20 a share for automation and worldwide market access; sustained account-growth failure would erase it. A weaker $2.65 earnings outcome at 26 times means $68.90, so this is a measured Buy, not a high-conviction bargain.
Risks
- Account additions may not become funded customers; watch monthly cash balances and margin loans, not account totals alone.
- Lower rates or scarce stock-lending opportunities could reduce income; watch interest spreads and the separately disclosed lending contribution.
- A market fall could shrink collateral and trigger losses; watch customer bad debts and regulatory capital, not headline operating cash flow.
What would change my mind
I would withdraw the Buy if two consecutive reported quarters show financing balances growing below 15% year over year while annualized adjusted earnings remain below $2.70 a share.