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Volatility, Client Activity to Aid Schwab's (SCHW) Q1 Earnings

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Zacks Equity Research
·4 min read
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Charles Schwab SCHW is scheduled to report first-quarter 2021 results on Apr 15, before market open. Its revenues and earnings in the quarter are expected to have improved on a year-over-year basis.

In fourth-quarter 2020, Schwab’s earnings surpassed the Zacks Consensus Estimate. Results reflected solid client asset balances and a rise in new brokerage accounts, which were driven by strong client activity in the pandemic-induced volatile markets.

However, 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 and EPS Surprise
The Charles Schwab Corporation Price and EPS Surprise

The Charles Schwab Corporation price-eps-surprise | The Charles Schwab Corporation Quote

Nevertheless, Schwab’s activities in the to-be-reported quarter encouraged analysts to revise earnings estimates upward. Over the past seven days, the Zacks Consensus Estimate for first-quarter earnings has been revised 5.4% upward to 78 cents. Also, the figure indicates an increase of 30% from the year-ago reported number.

The consensus estimate for sales is pegged at $4.34 billion, which suggests a 65.7% rise from the year-ago quarter’s reported figure.

Now, before we take a look at what our quantitative model predicts, let’s check the factors that are likely to have impacted Schwab’s first-quarter performance.

Key Factors at Play

The $1.9-trillion stimulus package, relatively low coronavirus infection cases, a rise in vaccine coverage, expectations of a faster-than-expected economic rebound and concerns over inflation led to a continued rise in equity market volatility in first-quarter 2021.

Notably, Schwab opened 1.10 million new brokerage accounts in January, up significantly year over year. In February, it opened 1.21 million accounts, up from 159,000 accounts in the previous year. The Zacks Consensus Estimate for the company’s active brokerage accounts for the first quarter is pegged at 30,623, which suggests a significant improvement from the previous year’s reported number.

Thus, driven by the rise in volatility and increased client activity, Schwab’s trading revenues are expected to have improved in the to-be-reported quarter.

Along with recording solid trading performance, the company is expected to have witnessed a rise in total client assets and average interest-earning assets in the quarter.

The Zacks Consensus Estimate for total client assets is pegged at $6.9 trillion, indicating 97.7% growth from the previous year’s reported figure. Moreover, the consensus estimate for average interest-earning assets is pegged at $511 billion, which suggests growth of 75% year over year.

However, despite expected growth in interest-earning assets, Schwab’s net interest revenues are not likely to have witnessed significant improvement in the quarter because of continued near-zero interest rates.

Schwab’s operating expenses have remained elevated over the past few quarters. Moreover, because of continued regulatory spending as well as ongoing investments to drive operating efficiency, overall expenses are expected to have remained high in the to-be-reported quarter.

What the Zacks Model Unveils

According to our quantitative model, the chances of Schwab beating the Zacks Consensus Estimate this time are high. This is because it has 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 +3.55%.

Zacks Rank: The company currently carries a Zacks Rank #2 (Buy).

Other Stocks Worth a Look

Here are some other finance stocks that you may want to consider as these too have the right combination of elements to post an earnings beat in their upcoming releases, per our model.

The Earnings ESP for Wells Fargo WFC is +5.32% and it carries a Zacks Rank of 3 at present. The company is scheduled to report quarterly numbers on Apr 14.

Citigroup C is slated to report quarterly results on Apr 15. The company has an Earnings ESP of +4.48% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bank of America BAC is slated to report quarterly earnings on Apr 15. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +0.49%.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>


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Citigroup Inc. (C) : Free Stock Analysis Report

The Charles Schwab Corporation (SCHW) : Free Stock Analysis Report

Wells Fargo & Company (WFC) : Free Stock Analysis Report

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