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Why is Schwab (SCHW) Down 7.3% Since its Last Earnings Report?
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It has been about a month since the last earnings report for The Charles Schwab Corporation (SCHW - Free Report) . Shares have lost about 7.3% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is SCHW due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Schwab Beats Q2 Earnings on Higher Interest Income
Schwab’s second-quarter 2018 earnings of 60 cents per share surpassed the Zacks Consensus Estimate of 58 cents. Also, earnings surged 54% from the prior-year quarter.
Revenue growth (driven by a rise in interest income and trading revenues) and absence of fee waivers supported the results. Further, the quarter witnessed an impressive rise in total client assets and new brokerage accounts. However, higher expenses remained the undermining factor.
Net income available to common shareholders was $813 million, jumping 53% year over year.
Revenue Growth Offset by Expense Rise
Net revenues were $2.49 billion, climbing 17% year over year. The rise was supported by net interest revenues (up 34%), trading revenues (up 15%) and other revenues (up 13%), partially offset by 4% decline in asset management and administration fees. The reported figure marginally topped the Zacks Consensus Estimate of $2.48 billion.
Total non-interest expenses increased 11% year over year to $1.36 billion. All expense components increased on a year-over-year basis.
Fee waivers were nil in the reported quarter against $1 million recorded a year ago.
Pre-tax profit margin improved to 45.5% from 42.7% recorded last year.
At the end of the second quarter, Schwab’s average interest-earning assets grew 13% year over year to $243.8 billion.
Annualized return on equity as of Jun 30, 2018, came in at 19%, up from 15% in the year-ago quarter.
Other Business Developments
As of Jun 30, 2018, Schwab had total client assets of $3.34 trillion (up 12% year over year). Also, net new assets — brought by new and existing clients — were inflows of $43.9 billion, down 32% from the prior-year quarter.
In addition, Schwab added 384,000 new brokerage accounts in the reported quarter. As of Jun 30, 2018, the company had a total of 11.2 million active brokerage accounts, 1.3 million banking accounts and 1.6 million corporate retirement plan participants.
Outlook
Given the first half 2018 performance and with one additional 2018 rate hike, management expects revenue growth to be in mid-to-upper double-digit in 2018, the gap between revenue and expense growth to be in the range of 400-600 bps and earn a pre-tax profit margin of around 45%.
As the company continues to pursue geographic strategy, management anticipates capital expenditures to be nearly 6-7% of total net revenues in 2018.
Management expects 2018 effective tax rate to be around 23-24%.
The company expects improving client activity and bulk transfers will drive balance sheet growth by at least 15% in 2018.
The company projects its Tier 1 Leverage ratio to be in the range of 6.75-7% by the end of 2018.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimate. There has been one revision higher for the current quarter compared to two lower.
The Charles Schwab Corporation Price and Consensus
At this time, SCHW has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. The stock was allocated 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions looks promising. Interestingly, SCHW has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why is Schwab (SCHW) Down 7.3% Since its Last Earnings Report?
It has been about a month since the last earnings report for The Charles Schwab Corporation (SCHW - Free Report) . Shares have lost about 7.3% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is SCHW due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Schwab Beats Q2 Earnings on Higher Interest Income
Schwab’s second-quarter 2018 earnings of 60 cents per share surpassed the Zacks Consensus Estimate of 58 cents. Also, earnings surged 54% from the prior-year quarter.
Revenue growth (driven by a rise in interest income and trading revenues) and absence of fee waivers supported the results. Further, the quarter witnessed an impressive rise in total client assets and new brokerage accounts. However, higher expenses remained the undermining factor.
Net income available to common shareholders was $813 million, jumping 53% year over year.
Revenue Growth Offset by Expense Rise
Net revenues were $2.49 billion, climbing 17% year over year. The rise was supported by net interest revenues (up 34%), trading revenues (up 15%) and other revenues (up 13%), partially offset by 4% decline in asset management and administration fees. The reported figure marginally topped the Zacks Consensus Estimate of $2.48 billion.
Total non-interest expenses increased 11% year over year to $1.36 billion. All expense components increased on a year-over-year basis.
Fee waivers were nil in the reported quarter against $1 million recorded a year ago.
Pre-tax profit margin improved to 45.5% from 42.7% recorded last year.
At the end of the second quarter, Schwab’s average interest-earning assets grew 13% year over year to $243.8 billion.
Annualized return on equity as of Jun 30, 2018, came in at 19%, up from 15% in the year-ago quarter.
Other Business Developments
As of Jun 30, 2018, Schwab had total client assets of $3.34 trillion (up 12% year over year). Also, net new assets — brought by new and existing clients — were inflows of $43.9 billion, down 32% from the prior-year quarter.
In addition, Schwab added 384,000 new brokerage accounts in the reported quarter. As of Jun 30, 2018, the company had a total of 11.2 million active brokerage accounts, 1.3 million banking accounts and 1.6 million corporate retirement plan participants.
Outlook
Given the first half 2018 performance and with one additional 2018 rate hike, management expects revenue growth to be in mid-to-upper double-digit in 2018, the gap between revenue and expense growth to be in the range of 400-600 bps and earn a pre-tax profit margin of around 45%.
As the company continues to pursue geographic strategy, management anticipates capital expenditures to be nearly 6-7% of total net revenues in 2018.
Management expects 2018 effective tax rate to be around 23-24%.
The company expects improving client activity and bulk transfers will drive balance sheet growth by at least 15% in 2018.
The company projects its Tier 1 Leverage ratio to be in the range of 6.75-7% by the end of 2018.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimate. There has been one revision higher for the current quarter compared to two 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, SCHW has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. The stock was allocated 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions looks promising. Interestingly, SCHW has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.