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Lower Market Volatility to Hurt Schwab's (SCHW) Q2 Earnings
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Charles Schwab (SCHW - Free Report) is scheduled to report second-quarter 2023 results on Jul 18, before market open. Its revenues and earnings in the quarter are expected to have declined on a year-over-year basis.
In the first quarter of 2023, Schwab’s earnings beat 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 has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in three and missed in one of the trailing four quarters.
The Charles Schwab Corporation Price and EPS Surprise
Schwab’s activities in the to-be-reported quarter did not encourage analysts to revise earnings estimates upward. In the past seven days, the Zacks Consensus Estimate for SCHW’s second-quarter earnings has been revised 2.6% lower to 74 cents per share. The estimate indicates a decline of 23.7% from the year-ago quarter’s reported number. Our estimate for second-quarter earnings is pinned at 87 cents.
The consensus estimate for sales is pegged at $4.61 billion, which indicates a fall of 9.6% from the year-ago quarter’s reported figure. Our estimate for total revenues is $4.59 billion, indicating a year-over-year decline of 10%.
SCHW also expects second-quarter revenues to witness a year-over-year decline of 10-11% because of margin compression, a smaller interest-earning asset base and softer trading activity.
Before we take a look at what our quantitative model predicts, let’s check the factors that are likely to have impacted Schwab’s second-quarter performance.
Key Factors & Estimates for Q2
Market volatility and client activity were subdued in the second quarter due to the Congressional debate over the debt ceiling. Also, the risks of an economic downturn/recession, the central banks’ hawkish monetary policy stance to stem out “sticky” inflation and geopolitical concerns led to ambiguity among investors.
These factors resulted in lower volatility in equity markets and other asset classes, including commodities, bonds and foreign exchange.
While investors did seem somewhat interested in entering the markets (in April and May, SCHW opened 331,000 and 314,000 new brokerage accounts, respectively), Schwab’s trading performance is expected to have been impacted because of lower volatility and subdued client activity.
The Zacks Consensus Estimate for second-quarter trading revenues is pegged at $800 million, which suggests a decline of 9.6% from the prior-year quarter’s reported number. Our estimate for trading revenues is pinned at $733.7 million, indicating a decline of 17.1%.
The consensus estimate for asset management and administration fees of $1.15 billion implies a rise of 9.3% from the prior-year quarter’s reported number.
Then, the consensus estimate for average interest-earning assets for the to-be-reported quarter is pegged at $506 billion, which suggests a decline of 18.9% from the prior-year quarter’s reported level.
While the Federal Reserve continued to tighten its monetary policy in the second quarter, raising interest rates by another 25 basis points, SCHW’s interest income is not expected to have improved much because of weaker loan demand. Moreover, the inversion of the yield curve and rising funding costs are expected to have weighed on net interest margin (NIM) to some extent.
The Zacks Consensus Estimate for second-quarter net interest revenues is pegged at $2.35 billion, which indicates a year-over-year decline of 7.8%.
SCHW’s chief financial officer, Peter Crawford, said that the company’s second-quarter NIM is expected to contract 35 basis points sequentially.
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 of $2.55 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 -2.39%.
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 Wells Fargo (WFC - Free Report) and PNC Financial (PNC - Free Report) .
PNC Financial is scheduled to release second-quarter 2023 earnings on Jul 18. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +1.41%.
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Lower Market Volatility to Hurt Schwab's (SCHW) Q2 Earnings
Charles Schwab (SCHW - Free Report) is scheduled to report second-quarter 2023 results on Jul 18, before market open. Its revenues and earnings in the quarter are expected to have declined on a year-over-year basis.
In the first quarter of 2023, Schwab’s earnings beat 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 has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in three and missed in one of the trailing four quarters.
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 did not encourage analysts to revise earnings estimates upward. In the past seven days, the Zacks Consensus Estimate for SCHW’s second-quarter earnings has been revised 2.6% lower to 74 cents per share. The estimate indicates a decline of 23.7% from the year-ago quarter’s reported number. Our estimate for second-quarter earnings is pinned at 87 cents.
The consensus estimate for sales is pegged at $4.61 billion, which indicates a fall of 9.6% from the year-ago quarter’s reported figure. Our estimate for total revenues is $4.59 billion, indicating a year-over-year decline of 10%.
SCHW also expects second-quarter revenues to witness a year-over-year decline of 10-11% because of margin compression, a smaller interest-earning asset base and softer trading activity.
Before we take a look at what our quantitative model predicts, let’s check the factors that are likely to have impacted Schwab’s second-quarter performance.
Key Factors & Estimates for Q2
Market volatility and client activity were subdued in the second quarter due to the Congressional debate over the debt ceiling. Also, the risks of an economic downturn/recession, the central banks’ hawkish monetary policy stance to stem out “sticky” inflation and geopolitical concerns led to ambiguity among investors.
These factors resulted in lower volatility in equity markets and other asset classes, including commodities, bonds and foreign exchange.
While investors did seem somewhat interested in entering the markets (in April and May, SCHW opened 331,000 and 314,000 new brokerage accounts, respectively), Schwab’s trading performance is expected to have been impacted because of lower volatility and subdued client activity.
The Zacks Consensus Estimate for second-quarter trading revenues is pegged at $800 million, which suggests a decline of 9.6% from the prior-year quarter’s reported number. Our estimate for trading revenues is pinned at $733.7 million, indicating a decline of 17.1%.
The consensus estimate for asset management and administration fees of $1.15 billion implies a rise of 9.3% from the prior-year quarter’s reported number.
Then, the consensus estimate for average interest-earning assets for the to-be-reported quarter is pegged at $506 billion, which suggests a decline of 18.9% from the prior-year quarter’s reported level.
While the Federal Reserve continued to tighten its monetary policy in the second quarter, raising interest rates by another 25 basis points, SCHW’s interest income is not expected to have improved much because of weaker loan demand. Moreover, the inversion of the yield curve and rising funding costs are expected to have weighed on net interest margin (NIM) to some extent.
The Zacks Consensus Estimate for second-quarter net interest revenues is pegged at $2.35 billion, which indicates a year-over-year decline of 7.8%.
SCHW’s chief financial officer, Peter Crawford, said that the company’s second-quarter NIM is expected to contract 35 basis points sequentially.
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 of $2.55 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 -2.39%.
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 Wells Fargo (WFC - Free Report) and PNC Financial (PNC - Free Report) .
The Earnings ESP for Wells Fargo is +0.16% and it carries a Zacks Rank #3 at present. The company is slated to report second-quarter 2023 results on Jul 14. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
PNC Financial is scheduled to release second-quarter 2023 earnings on Jul 18. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +1.41%.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.