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Higher Interest Rates to Support Schwab's (SCHW) Q1 Earnings
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Charles Schwab (SCHW - Free Report) is scheduled to report first-quarter 2023 results on Apr 17, before market open. Its revenues and earnings in the quarter are expected to have improved on a year-over-year basis.
In fourth-quarter 2022, Schwab’s earnings missed 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. However, higher expenses created a headwind.
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 did not encourage analysts to revise earnings estimates upward. In the past 30 days, the Zacks Consensus Estimate for SCHW’s first-quarter earnings has been revised 9.9% lower to 91 cents. However, the estimate indicates an increase of 18.2% from the year-ago quarter’s reported number. Our estimate for first-quarter earnings is 90 cents.
The consensus estimate for sales is pegged at $5.18 billion, which suggests an increase of 10.9% from the year-ago quarter’s reported figure. Our estimate for total revenues is $5.30 billion, indicating a year-over-year rise of 13.4%.
SCHW projects year-over-year revenue growth of 10%.
Before we take a look at what our quantitative model predicts, let’s check the factors that are likely to have impacted Schwab’s first-quarter performance.
Key Factors & Estimates for Q1
Similar to 2022, market volatility and client activity have been robust in the first quarter. Several factors, including the ongoing Russia-Ukraine conflict, continued supply-chain disruptions, bank runs, fears of an economic downturn/recession and the central banks’ hawkish monetary policy stance to stem out “sticky” inflation, led to ambiguity among investors.
These factors resulted in heightened volatility in the equity markets and other asset classes, including commodities, bonds and foreign exchange.
Investors seemed interested in entering the markets. In January, SCHW opened 344,000 new brokerage accounts. In February, brokerage accounts opened were 320,000.
Thus, 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 from the year-ago quarter (which created a record).
The Zacks Consensus Estimate for first-quarter trading revenues is pegged at $908 million, which suggests a decline of 5.7% from the prior-year quarter’s reported number. Our estimate for trading revenues is $890 million.
The consensus estimate for asset management and administration fees of $1.08 billion suggests a rise of 1.1% from the prior-year quarter’s reported number. Our estimate for the same is $975.5 million.
Then, the consensus estimate for average interest-earning assets for the to-be-reported quarter is pegged at $504 billion, which suggests a decline of 20.3% from the prior-year quarter’s reported level. Our estimate for average interest-earning assets is $484.3 billion, suggesting a year-over-year decline of 23.4%.
Despite not-so-impressive loan growth in the first quarter, Schwab’s net interest revenues are expected to have improved, supported by higher interest rates (though the pace has slowed down, the Federal Reserve continued with the tightening of monetary policy, raising rates by another 50 basis points in the quarter). The Zacks Consensus Estimate for net interest revenues is pegged at $2.9 billion, which suggests a year-over-year rise of 32.8%. Our estimate for the same is $3 billion.
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 12.3% year over year to $3.2 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 low. This is because it does not have 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 0.00%.
Zacks Rank: The company currently carries a Zacks Rank #4 (Sell).
Stocks Worth a Look
A few finance stocks, which you may want to consider, as these have the right combination of elements to post an earnings beat in their upcoming releases per our model, are The Bank of New York Mellon Corporation (BK - Free Report) and BankUnited (BKU - Free Report) .
The Earnings ESP for BNY Mellon is +2.58% and it carries a Zacks Rank #3 at present. The company is slated to report first-quarter 2023 results on Apr 18.
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Higher Interest Rates to Support Schwab's (SCHW) Q1 Earnings
Charles Schwab (SCHW - Free Report) is scheduled to report first-quarter 2023 results on Apr 17, before market open. Its revenues and earnings in the quarter are expected to have improved on a year-over-year basis.
In fourth-quarter 2022, Schwab’s earnings missed 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. However, higher expenses created a headwind.
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 did not encourage analysts to revise earnings estimates upward. In the past 30 days, the Zacks Consensus Estimate for SCHW’s first-quarter earnings has been revised 9.9% lower to 91 cents. However, the estimate indicates an increase of 18.2% from the year-ago quarter’s reported number. Our estimate for first-quarter earnings is 90 cents.
The consensus estimate for sales is pegged at $5.18 billion, which suggests an increase of 10.9% from the year-ago quarter’s reported figure. Our estimate for total revenues is $5.30 billion, indicating a year-over-year rise of 13.4%.
SCHW projects year-over-year revenue growth of 10%.
Before we take a look at what our quantitative model predicts, let’s check the factors that are likely to have impacted Schwab’s first-quarter performance.
Key Factors & Estimates for Q1
Similar to 2022, market volatility and client activity have been robust in the first quarter. Several factors, including the ongoing Russia-Ukraine conflict, continued supply-chain disruptions, bank runs, fears of an economic downturn/recession and the central banks’ hawkish monetary policy stance to stem out “sticky” inflation, led to ambiguity among investors.
These factors resulted in heightened volatility in the equity markets and other asset classes, including commodities, bonds and foreign exchange.
Investors seemed interested in entering the markets. In January, SCHW opened 344,000 new brokerage accounts. In February, brokerage accounts opened were 320,000.
Thus, 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 from the year-ago quarter (which created a record).
The Zacks Consensus Estimate for first-quarter trading revenues is pegged at $908 million, which suggests a decline of 5.7% from the prior-year quarter’s reported number. Our estimate for trading revenues is $890 million.
The consensus estimate for asset management and administration fees of $1.08 billion suggests a rise of 1.1% from the prior-year quarter’s reported number. Our estimate for the same is $975.5 million.
Then, the consensus estimate for average interest-earning assets for the to-be-reported quarter is pegged at $504 billion, which suggests a decline of 20.3% from the prior-year quarter’s reported level. Our estimate for average interest-earning assets is $484.3 billion, suggesting a year-over-year decline of 23.4%.
Despite not-so-impressive loan growth in the first quarter, Schwab’s net interest revenues are expected to have improved, supported by higher interest rates (though the pace has slowed down, the Federal Reserve continued with the tightening of monetary policy, raising rates by another 50 basis points in the quarter). The Zacks Consensus Estimate for net interest revenues is pegged at $2.9 billion, which suggests a year-over-year rise of 32.8%. Our estimate for the same is $3 billion.
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 12.3% year over year to $3.2 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 low. This is because it does not have 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 0.00%.
Zacks Rank: The company currently carries a Zacks Rank #4 (Sell).
Stocks Worth a Look
A few finance stocks, which you may want to consider, as these have the right combination of elements to post an earnings beat in their upcoming releases per our model, are The Bank of New York Mellon Corporation (BK - Free Report) and BankUnited (BKU - Free Report) .
The Earnings ESP for BNY Mellon is +2.58% and it carries a Zacks Rank #3 at present. The company is slated to report first-quarter 2023 results on Apr 18.
BankUnited is expected to release first-quarter 2023 earnings on Apr 20. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +4.84%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.