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Why Is Schwab (SCHW) Down 2.5% Since Last Earnings Report?
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It has been about a month since the last earnings report for Schwab (SCHW - Free Report) . Shares have lost about 2.5% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Schwab 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 drivers.
Schwab’s Q3 Earnings Beat on Higher Revenues, Costs Up
Charles Schwab’s third-quarter 2018 earnings of 65 cents per share beat the Zacks Consensus Estimate by a penny. Also, earnings surged 55% from the prior-year quarter.
Revenue growth (driven by a rise in interest income and trading revenues) and absence of fee waivers drove the results. Further, the quarter witnessed an impressive rise in total client assets and new brokerage accounts. However, higher expenses remained a concern.
Net income available to common shareholders was $885 million, jumping 53.9% year over year.
Revenue Growth Offset by Rise in Expense
Net revenues were $2.58 billion, up 18.9% year over year. The rise was supported by net interest revenues (up 41.7%) and trading revenues (up 16.6%), partially offset by 5.6% decline in other revenues and 6% fall in asset management and administration fees. The reported figure marginally missed the Zacks Consensus Estimate of $2.59 billion.
Total non-interest expenses increased 11.5% 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 47.3% from 43.6% recorded last year.
At the end of the third quarter, Schwab’s average interest-earning assets grew 20.5% year over year to $258.3 billion.
Annualized return on equity as of Sep 30, 2018, came in at 20%, up from 15% in the year-ago quarter.
Other Business Developments
As of Sep 30, 2018, Schwab had total client assets of $3.56 trillion (up 12% year over year). Also, net new assets — brought by new and existing clients — were $53.5 billion, up 4% from the prior-year quarter.
Schwab added 369,000 new brokerage accounts in the reported quarter. As of Sep 30, 2018, the company had 11.4 million active brokerage accounts, 1.3 million banking accounts and 1.6 million corporate retirement plan participants.
Outlook
Given the first nine months 2018 performance and with one more rate hike expected in the fourth quarter, management expects revenue growth to be in mid-to-upper teens in 2018, net interest margin to remain in high 220s range, the gap between revenue and expense growth to be in the range of 400-600 basis points and earn a pre-tax profit margin of around 45%.
Management expects 2018 effective tax rate to be around 23-24%.
As of Sep 30, 2018, the company had $33 billion remaining in sweep money market funds. Sweep money market funds transfer is expected to be completed by first-half 2019.
The company expects improving client activity and bulk transfers to 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 estimates.
VGM Scores
At this time, Schwab has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Schwab has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Why Is Schwab (SCHW) Down 2.5% Since Last Earnings Report?
It has been about a month since the last earnings report for Schwab (SCHW - Free Report) . Shares have lost about 2.5% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Schwab 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 drivers.
Schwab’s Q3 Earnings Beat on Higher Revenues, Costs Up
Charles Schwab’s third-quarter 2018 earnings of 65 cents per share beat the Zacks Consensus Estimate by a penny. Also, earnings surged 55% from the prior-year quarter.
Revenue growth (driven by a rise in interest income and trading revenues) and absence of fee waivers drove the results. Further, the quarter witnessed an impressive rise in total client assets and new brokerage accounts. However, higher expenses remained a concern.
Net income available to common shareholders was $885 million, jumping 53.9% year over year.
Revenue Growth Offset by Rise in Expense
Net revenues were $2.58 billion, up 18.9% year over year. The rise was supported by net interest revenues (up 41.7%) and trading revenues (up 16.6%), partially offset by 5.6% decline in other revenues and 6% fall in asset management and administration fees. The reported figure marginally missed the Zacks Consensus Estimate of $2.59 billion.
Total non-interest expenses increased 11.5% 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 47.3% from 43.6% recorded last year.
At the end of the third quarter, Schwab’s average interest-earning assets grew 20.5% year over year to $258.3 billion.
Annualized return on equity as of Sep 30, 2018, came in at 20%, up from 15% in the year-ago quarter.
Other Business Developments
As of Sep 30, 2018, Schwab had total client assets of $3.56 trillion (up 12% year over year). Also, net new assets — brought by new and existing clients — were $53.5 billion, up 4% from the prior-year quarter.
Schwab added 369,000 new brokerage accounts in the reported quarter. As of Sep 30, 2018, the company had 11.4 million active brokerage accounts, 1.3 million banking accounts and 1.6 million corporate retirement plan participants.
Outlook
Given the first nine months 2018 performance and with one more rate hike expected in the fourth quarter, management expects revenue growth to be in mid-to-upper teens in 2018, net interest margin to remain in high 220s range, the gap between revenue and expense growth to be in the range of 400-600 basis points and earn a pre-tax profit margin of around 45%.
Management expects 2018 effective tax rate to be around 23-24%.
As of Sep 30, 2018, the company had $33 billion remaining in sweep money market funds. Sweep money market funds transfer is expected to be completed by first-half 2019.
The company expects improving client activity and bulk transfers to 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 estimates.
VGM Scores
At this time, Schwab has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Schwab has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.