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Higher Rates, Robust Trading to Aid Schwab's (SCHW) Q4 Earnings
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Charles Schwab (SCHW - Free Report) is scheduled to report fourth-quarter and 2022 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 2022, Schwab’s earnings surpassed the Zacks Consensus Estimate. Results benefited from higher rates, which led to a rise in net interest income. Also, the absence of fee waivers and solid brokerage account numbers acted as tailwinds in the quarter. However, higher expenses hurt results to some extent.
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.
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 1.9% higher to $1.10. The estimate indicates an increase of 27.9% from the year-ago quarter’s reported number. Our estimate for fourth-quarter earnings is $1.05.
The consensus estimate for sales is pegged at $5.57 billion, which suggests an increase of 18.4% from the year-ago quarter’s reported figure. Our estimate for total revenues is $5.49 billion, indicating a year-over-year rise of 16.7%.
SCHW projects 2022 revenue growth of 11-13%, assuming the market’s forward rate expectations as of early-October.
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
Similar to the first three quarters of 2022, market volatility and client activity were robust in the fourth quarter. Few developments, including Russia’s invasion of Ukraine and continued supply-chain disruptions, led to ambiguity among investors.
Also, the ultra-aggressive stance of the central banks across the globe to control inflation and resultant fears of an economic downturn/recession drove client activity and trading volumes. These factors led to heightened volatility in the equity markets and other asset classes, including commodities, bonds and foreign exchange.
Investors seemed interested in entering the markets. In October, SCHW opened 298,000 new brokerage accounts. In November, brokerage accounts opened were 303,000.
While Schwab’s trading performance is expected to have been robust in the quarter under review, supported by higher volatility and client activity, trading revenues are not expected to have improved much from the year-ago quarter.
The Zacks Consensus Estimate for fourth-quarter trading revenues is pegged at $905 million, which suggests a decline of 11% from the prior-year quarter’s reported number. Our estimate for trading revenues is $1.05 billion.
Then, the consensus estimate for average interest-earning assets for the to-be-reported quarter is pegged at $540 billion, which suggests a decline of 8.2% from the prior-year quarter’s reported level. Our estimate for average interest-earning assets is $617.2 billion, suggesting year-over-year growth of 4.9%.
In the fourth quarter, the Federal Reserve continued with its ultra-hawkish monetary policy stance, raising interest rates by another 125 basis points. The policy rate reached 4.25-4.50%, the highest in the past 15 years. Also, the overall lending scenario was decent.
Thus, supported by loan growth and higher interest rates, Schwab’s net interest revenues are likely to have been positively impacted. The Zacks Consensus Estimate for net interest revenues is pegged at $3 billion, which suggests a year-over-year rise of 39.9%. Our estimate for the same is also $3 billion.
Management expects net interest revenues of $3 billion in the fourth quarter as well. Net interest margin is expected to be in the mid-210 bps zone.
The consensus estimate for asset management and administration fees of $1.07 billion suggests a decline of 3.3% from the prior-year quarter’s reported number. Our estimate for the same is $1.02 billion, indicating a year-over-year fall of 8.3%.
Coming to expenses, Schwab’s operating expenses have been elevated in the past few quarters. Due to the persistent regulatory spending and strategic buyouts to drive efficiency, overall expenses are expected to have been high in the to-be-reported quarter. We project total expenses to rise 12.7% year over year to $3.03 billion.
What the Zacks Model Unveils
According to our quantitative model, the chances of Schwab beating the Zacks Consensus Estimate for earnings 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 +1.08%.
Zacks Rank: The company currently carries a Zacks Rank #3.
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 Hancock Whitney Corporation (HWC - Free Report) and Truist Financial Corporation (TFC - Free Report) .
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Higher Rates, Robust Trading to Aid Schwab's (SCHW) Q4 Earnings
Charles Schwab (SCHW - Free Report) is scheduled to report fourth-quarter and 2022 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 2022, Schwab’s earnings surpassed the Zacks Consensus Estimate. Results benefited from higher rates, which led to a rise in net interest income. Also, the absence of fee waivers and solid brokerage account numbers acted as tailwinds in the quarter. However, higher expenses hurt results to some extent.
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.
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 1.9% higher to $1.10. The estimate indicates an increase of 27.9% from the year-ago quarter’s reported number. Our estimate for fourth-quarter earnings is $1.05.
The consensus estimate for sales is pegged at $5.57 billion, which suggests an increase of 18.4% from the year-ago quarter’s reported figure. Our estimate for total revenues is $5.49 billion, indicating a year-over-year rise of 16.7%.
SCHW projects 2022 revenue growth of 11-13%, assuming the market’s forward rate expectations as of early-October.
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
Similar to the first three quarters of 2022, market volatility and client activity were robust in the fourth quarter. Few developments, including Russia’s invasion of Ukraine and continued supply-chain disruptions, led to ambiguity among investors.
Also, the ultra-aggressive stance of the central banks across the globe to control inflation and resultant fears of an economic downturn/recession drove client activity and trading volumes. These factors led to heightened volatility in the equity markets and other asset classes, including commodities, bonds and foreign exchange.
Investors seemed interested in entering the markets. In October, SCHW opened 298,000 new brokerage accounts. In November, brokerage accounts opened were 303,000.
While Schwab’s trading performance is expected to have been robust in the quarter under review, supported by higher volatility and client activity, trading revenues are not expected to have improved much from the year-ago quarter.
The Zacks Consensus Estimate for fourth-quarter trading revenues is pegged at $905 million, which suggests a decline of 11% from the prior-year quarter’s reported number. Our estimate for trading revenues is $1.05 billion.
Then, the consensus estimate for average interest-earning assets for the to-be-reported quarter is pegged at $540 billion, which suggests a decline of 8.2% from the prior-year quarter’s reported level. Our estimate for average interest-earning assets is $617.2 billion, suggesting year-over-year growth of 4.9%.
In the fourth quarter, the Federal Reserve continued with its ultra-hawkish monetary policy stance, raising interest rates by another 125 basis points. The policy rate reached 4.25-4.50%, the highest in the past 15 years. Also, the overall lending scenario was decent.
Thus, supported by loan growth and higher interest rates, Schwab’s net interest revenues are likely to have been positively impacted. The Zacks Consensus Estimate for net interest revenues is pegged at $3 billion, which suggests a year-over-year rise of 39.9%. Our estimate for the same is also $3 billion.
Management expects net interest revenues of $3 billion in the fourth quarter as well. Net interest margin is expected to be in the mid-210 bps zone.
The consensus estimate for asset management and administration fees of $1.07 billion suggests a decline of 3.3% from the prior-year quarter’s reported number. Our estimate for the same is $1.02 billion, indicating a year-over-year fall of 8.3%.
Coming to expenses, Schwab’s operating expenses have been elevated in the past few quarters. Due to the persistent regulatory spending and strategic buyouts to drive efficiency, overall expenses are expected to have been high in the to-be-reported quarter. We project total expenses to rise 12.7% year over year to $3.03 billion.
What the Zacks Model Unveils
According to our quantitative model, the chances of Schwab beating the Zacks Consensus Estimate for earnings 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 +1.08%.
Zacks Rank: The company currently carries a Zacks Rank #3.
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 Hancock Whitney Corporation (HWC - Free Report) and Truist Financial Corporation (TFC - Free Report) .
Hancock Whitney is scheduled to release fourth-quarter 2022 earnings on Jan 17. HWC, which carries a Zacks Rank #2 (Buy) at present, has an Earnings ESP of +0.10%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Earnings ESP for Truist is +0.23% and it carries a Zacks Rank #3 at present. TFC is slated to report fourth-quarter 2022 results on Jan 19.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.