Robust Trading, Higher Rates to Aid Schwab's (SCHW) Q3 Earnings
Charles Schwab SCHW is scheduled to report third-quarter 2022 results on Oct 17, before market open. Its revenues and earnings in the quarter are expected to have improved on a year-over-year basis.
In second-quarter 2022, Schwab’s earnings surpassed the Zacks Consensus Estimate. Results were aided by increased net interest income. Also, lower fee waivers and growth in brokerage account numbers acted as tailwinds. However, higher expenses were a headwind.
The company does not have an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in two and lagged in two of the trailing four quarters.
The Charles Schwab Corporation Price and EPS Surprise
The Charles Schwab Corporation price-eps-surprise | The Charles Schwab Corporation Quote
Schwab’s activities in the to-be-reported quarter encouraged analysts to revise earnings estimates upward. In the past 30 days, the Zacks Consensus Estimate for SCHW’s third-quarter earnings has been revised 1% higher to $1.05. The estimate indicates an increase of 25% from the year-ago quarter’s reported number. Our estimate for third-quarter earnings is $1.02.
The consensus estimate for sales is pegged at $5.40 billion, which suggests an increase of 18.1% from the year-ago quarter’s reported figure. Our estimate for total revenues is $5.38 billion, indicating a year-over-year rise of 17.8%.
SCHW projects the third-quarter top line to grow 18-19% on a year-over-year basis, given the “ongoing success with clients” and a robust net interest margin.
Before we take a look at what our quantitative model predicts, let’s check the factors that are likely to have impacted Schwab’s third-quarter performance.
Key Factors & Estimates for Q3
After witnessing a gradual normalization in the second half of 2021, trading activities rebounded in the first half of 2022, with the trend continuing into the third quarter. Certain developments, including Russia’s invasion of Ukraine and the continued supply-chain disruptions, led to uncertainty among investors.
Also, fears of a severe economic slowdown amid the ultra-aggressive stance of the central banks across the globe to control inflation drove client activity and trading volumes in the third quarter.
Driven by the rise in volatility, investors seemed somewhat interested in entering the markets.
In July, SCHW opened 278,000 new brokerage accounts. In August, brokerage accounts opened were 332,000.
While Schwab’s trading performance is expected to have been robust in the quarter under review, supported by higher volatility and client activity, trading revenues are not expected to have improved significantly from the year-ago quarter.
The Zacks Consensus Estimate for third-quarter trading revenues is pegged at $862 million, which suggests a decline of 10.6% from the prior-year quarter’s reported number. Our estimate for trading revenues is $1.09 billion.
The consensus estimate for total client assets is pegged at $7.2 trillion, which indicates a decline of 5.1% on a year-over-year basis. However, the consensus estimate for average interest-earning assets of $598 billion suggests growth of 7.7% from the prior-year quarter’s reported level. Our estimate for average interest-earning assets is $678.2 billion, suggesting year-over-year growth of 22.3%.
Thus, supported by the expected growth in interest-earning assets, along with higher interest rates, Schwab’s net interest revenues are likely to have been positively impacted. The Zacks Consensus Estimate for net interest revenues is pegged at $2.83 billion, which suggests a year-over-year rise of 39.4%. Our estimate for the same is $2.51 billion, suggesting a rise of 23.7%.
The consensus estimate for asset management and administration fees of $1.10 billion suggests no change from the prior-year quarter. Our estimate for the same is $1.23 billion, indicating a year-over-year rise of 11.4%.
Coming to expenses, Schwab’s operating expenses have been elevated in the past few quarters. Due to the persistent regulatory spending and strategic buyouts to drive efficiency, overall expenses are expected to have been high in the to-be-reported quarter.
What the Zacks Model Unveils
According to our quantitative model, it cannot be conclusively predicted whether Schwab will be able to beat the Zacks Consensus Estimate this time. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Schwab is 0.00%.
Zacks Rank: The company currently carries a Zacks Rank #3. While this increases the predictive power of ESP, we also need a positive ESP to be confident of an earnings surprise call.
Stocks Worth a Look
A few finance stocks, which you may want to consider, as these have the right combination of elements to post an earnings beat in their upcoming releases per our model, are Associated Banc-Corp ASB and LPL Financial LPLA.
Associated Banc-Corp is scheduled to release third-quarter 2022 earnings on Oct 20. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +2.39%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Earnings ESP for LPL Financial is +2.28% and it sports a Zacks Rank #1 at present. The company is slated to report third-quarter 2022 results on Oct 27.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
The Charles Schwab Corporation (SCHW) : Free Stock Analysis Report
LPL Financial Holdings Inc. (LPLA) : Free Stock Analysis Report
Associated BancCorp (ASB) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
