It has been about a month since the last earnings report for The Charles Schwab Corporation (
SCHW Quick Quote SCHW - Free Report) . Shares have added about 2.9% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is The Charles Schwab Corporation due for a pullback? 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 Q4 Earnings Beat Estimates, Revenues Surge Y/Y
Charles Schwab’s fourth-quarter 2020 adjusted earnings of 74 cents per share beat the Zacks Consensus Estimate of 70 cents. Also, the bottom line grew 17% from the prior-year quarter, as the company reported first full-quarter results after closing TD Ameritrade deal in October 2020
Results reflect solid client assets balance and a rise in new brokerage accounts. These were driven by solid client activity in the coronavirus outbreak-induced volatile markets, which supported revenues in the quarter. However, an increase in expenses and fee waivers acted as headwinds. Results excluded acquisition and integration-related costs as well as the amortization of acquired intangibles. After considering these, net income available to common shareholders (GAAP basis) was $1.05 billion or 57 cents per share compared with $801 million or 62 cents per share in the year-ago quarter. In 2020, adjusted earnings were $2.45 per share, outpacing the Zacks Consensus Estimate of $2.39. However, the figure was down 9% from the prior year. On GAAP basis, net income available to common shareholders was $3.04 billion or $2.12 per share, down from $3.53 million or $2.67 per share in 2019. Revenues & Expenses Jump on TD Ameritrade Deal
Net revenues in the reported quarter were $4.18 billion, jumping 60% year over year. The rise was driven by improvement in all revenue components. The top line surpassed the Zacks Consensus Estimate of $4.13 billion.
In 2020, net revenues grew 9% year over year to $11.70 billion. The figure beat the consensus estimate of $11.32 billion. Total non-interest expenses (GAAP basis) surged 81% year over year to $2.7 billion. Excluding non-recurring items, expenses were $2.27 billion, up 54%. Additionally, the company recorded fee waivers of $68 million in the reported quarter. Pre-tax profit margin declined to 35.3% from 42.7% in the prior-year quarter. At the end of the fourth quarter, Schwab’s average interest-earning assets jumped 72% year over year to $462.8 billion. Annualized return on equity as of Dec 31, 2020, was 11%, down from 17% at the end of the prior-year quarter. Other Business Metrics
As of Dec 31, 2020, Schwab had total client assets of $6.7 trillion (up 66% year over year). During the reported quarter, net new assets — brought by new and existing clients — were $1.7 billion.
Schwab added 15.8 million new brokerage accounts during the quarter. As of Dec 31, 2020, the company had 29.6 million active brokerage accounts, 1.5 million banking accounts and 2.1 million corporate retirement plan participants. How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 17.6% due to these changes.
At this time, The Charles Schwab Corporation has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise The Charles Schwab Corporation has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.