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Decent Client Activity to Aid Schwab (SCHW) in Q4 Earnings

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Charles Schwab (SCHW - Free Report) is scheduled to report fourth-quarter and 2021 results on Jan 18, before market open. Its revenues and earnings in the quarter are expected to have improved on a year-over-year basis.

In third-quarter 2021, 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.

The company has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with an average beat of 3.7%.

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

Schwab’s activities in the to-be-reported quarter encouraged analysts to revise earnings estimates upward. In the past 30 days, the Zacks Consensus Estimate for SCHW’s fourth-quarter earnings has been revised 4.8% upward to 87 cents. The estimate indicates an increase of 17.6% from the year-ago quarter’s reported number.

The consensus estimate for fourth-quarter sales is pegged at $4.84 billion, which suggests an increase of 15.9% from the year-ago quarter’s reported figure.

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

Key Factors & Estimates for Q4

In contrast to the fourth quarter of 2020, the to-be-reported quarter witnessed relatively normalized markets and reduced volatility. Despite the year-over-year decline in volatility in the fourth quarter of 2021, investors were still interested in entering the markets. Compared with third-quarter 2021, client activity was higher in the to-be-reported quarter. Thus, Schwab witnessed sequential growth in new brokerage accounts.

In October, the company opened 397,000 new brokerage accounts, up 6% from the prior month’s levels. In November, new brokerage accounts increased 13% sequentially to 448,000.

Thus, despite relatively normalized markets and low volatility, Schwab’s trading revenues are expected to have been positively impacted in the quarter under review compared with the previous reported quarter.

The Zacks Consensus Estimate for fourth-quarter trading revenues is pegged at $1.01 billion, which suggests a rise of 4.9% from the previous quarter’s reported number.

The consensus estimate for total client assets for the fourth quarter is pegged at $8.2 trillion, which indicates 7.4% growth sequentially. Also, the consensus estimate for average interest-earning assets of $578 billion suggests growth of 4.1% from the previous quarter’s level.

Thus, despite the continued low interest rate environment, Schwab’s net interest revenues are likely to have been positively impacted by expected growth in interest-earning assets. The Zacks Consensus Estimate for net interest revenues is pegged at $2.2 billion, which suggests a rise of 6.7% sequentially.

The consensus estimate for asset management and administration fees of $1.1 billion also suggests growth of 3.3%, sequentially.

Management expects a modest sequential balance sheet expansion for the fourth quarter. Net interest margin is projected in the mid-140 basis points. Daily average trades are projected to be stable on a sequential basis.

Coming to expenses, Schwab’s operating expenses have been elevated in the past few quarters. Due to persistent regulatory spending and strategic buyouts to drive efficiency, overall expenses are expected to have been high in the to-be-reported quarter as well.

Management projects fourth-quarter compensation expenses to include the special 5% pay raise, and consider the additional hiring to support persistent business growth and TDA integration efforts. Non-compensation expenses are anticipated to have been relatively stable.

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 +0.65%.

Zacks Rank: The company currently sports a Zacks Rank #1 (Strong Buy).

Other Stocks Worth a Look

A few other finance stocks, which 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, are Commerce Bancshares, Inc. (CBSH - Free Report) , BankUnited, Inc. (BKU - Free Report) and Ally Financial Inc. (ALLY - Free Report) .

The Earnings ESP for Commerce Bancshares is +1.24% and it carries a Zacks Rank of 3 at present. CBSH is scheduled to report quarterly numbers on Jan 19.

BankUnited is slated to report quarterly results on Jan 20. BKU currently has an Earnings ESP of +42.98% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ally Financial is slated to report quarterly earnings on Jan 21. ALLY, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +4.87%.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.