Schwab (SCHW) Down 3.4% Since Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for The Charles Schwab Corporation SCHW. Shares have lost about 3.4% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Schwab Meets Q2 Earnings and Revenue Expectations
Schwab’s second-quarter 2017 earnings of 39 cents per share were in line with the Zacks Consensus Estimate. It increased 30% from the prior-year quarter.
Revenue growth, lower level of fee waivers and no provisions were among the positives. Further, there was an impressive rise in total client assets and new brokerage accounts. However, higher expenses and a decline in trading revenues remained the headwinds.
Net income available to common shareholders was $530 million, up 31% year over year.
Revenue Improvement Offset by Expense Rise
Net revenue was $2.13 billion, climbing 17% year over year, supported by asset management and administration fees (up 12%), other revenues (up 7%) and net interest revenues (up 32%). These were partly offset by a 22% fall in trading revenues. The reported figure was in line with the Zacks Consensus Estimate.
Total non-interest expenses rose 10% year over year to $1.22 billion. All expense components, except communication costs, increased on a year-over-year basis.
Provision for loan losses was nil as against $2 million in the year-ago quarter.
Fee waivers were $1 million, down 98% from the year-ago quarter.
Pre-tax profit margin improved to 42.7% from 39.4% recorded last year.
At the end of the second quarter, Schwab’s average interest-earning assets jumped 17% year over year to $215.76 billion.
Annualized return on equity as of Jun 30, 2017, came in at 15%, up from 13% a year ago.
Other Business Developments
As of Jun 30, 2017, Schwab had total client assets of $3.04 trillion (up 16% year over year). Also, net new assets – bought by new and existing clients – jumped 142% from the prior-year quarter to $64.5 billion.
In addition, Schwab added 357,000 new brokerage accounts in the reported quarter. As of Jun 30, 2017, the company had a total of 10.5 million active brokerage accounts, 1.1 million banking accounts and 1.5 million corporate retirement plan participants.
Outlook
Management expects revenue growth to be in low to mid-double digits in 2017, on assumptions of no further changes in short-term interest rates.
Management projects the gap between revenue and expense growth to be approximately 400 basis points in 2017 and expects to earn a pre-tax profit margin of at least 42%.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to five lower.
The Charles Schwab Corporation Price and Consensus
The Charles Schwab Corporation Price and Consensus | The Charles Schwab Corporation Quote
VGM Scores
At this time, Schwab's stock has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. Following the exact same course, the stock was allocated also a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for growth investors than those looking for value and momentum.
Outlook
While estimates have been broadly trending downward for the stock, the magnitude of these revisions has been net zero. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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