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The Charles Schwab Corporation (SCHW) Up 2.1% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for The Charles Schwab Corporation (SCHW - Free Report) . Shares have added about 2.1% 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 Q3 Earnings Beat Estimates, Revenues Down
Schwab’s third-quarter 2023 adjusted earnings of 77 cents per share beat the Zacks Consensus Estimate of 75 cents. The bottom line, however, declined 30% from the prior-year quarter.
Results benefited from the solid performance of the asset management business. The absence of fee waivers and solid brokerage account numbers acted as tailwinds during the quarter. However, lower revenues due to higher funding costs and lower volatility posed a major headwind. The company also recorded a rise in expenses.
Results excluded acquisition and integration-related costs, amortization of acquired intangibles and restructuring costs. After considering these, net income (GAAP basis) was $1.13 billion or 56 cents per share, down from $2.02 billion or 99 cents per share in the year-ago quarter. We had projected net income (GAAP) of $1.31 billion.
Revenues Decline, Expenses Rise
Quarterly net revenues were $4.61 billion, which fell 16% year over year. The decrease was mainly due to a 50% plunge in bank deposit fees, a 24% fall in NII and a 17% slide in trading revenues. These were partly offset by a 17% increase in asset management and administration fees. The top line also missed the Zacks Consensus Estimate of $4.64 billion.
Total non-interest expenses (GAAP basis) increased 14% to $3.22 billion. We had projected this metric to be $2.98 billion. Excluding non-recurring items, expenses were $2.7 billion, up 5%.
The company has identified “a number of opportunities for increased efficiency.” Once fully realized, these strategic actions are expected to deliver at least $1 billion of incremental annual expense savings.
Pre-tax profit margin decreased to 30% from 48.7% in the prior-year quarter.
At the end of the third quarter, Schwab’s average interest-earning assets decreased 23% year over year to $453.8 billion.
Annualized return on equity, as of Sep 30, 2023, was 14%, down from 25% in the prior-year quarter.
Other Business Metrics
As of Sep 30, 2023, Schwab had total client assets of $7.82 trillion (up 18% year over year). During the reported quarter, net new assets — brought by new and existing clients — were $48.2 billion.
Schwab added 0.9 million new brokerage accounts during the quarter. As of Sep 30, 2023, the company had 34.5 million active brokerage accounts, 1.8 million banking accounts and 2.5 million corporate retirement plan participants.
Outlook
NIM is expected to reach the 210-bps range by the fourth quarter of 2023. Moreover, Schwab expects NIM to expand to the 270-bps range by the end of 2024.
By the end of 2025, NIM is anticipated to reach 3%.
The company anticipates 2023 revenues to decline 8-9% year over year.
In 2023, GAAP expense growth of 9% is expected and the adjusted expense growth is anticipated to be 6%.
Management targets an incremental $500 million plus in run-rate expense savings beyond the remaining committed TDA deal synergies.
The company expects the one-time FDIC special assessment cost to impact GAAP and adjusted expenses by $160 million in the fourth quarter of 2023.
The company’s 2024 year-over-year expense growth is expected to be flat or slightly negative.
The adjusted tier 1 leverage ratio is expected to be above 6.5% by the end of 2024.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -8.51% due to these changes.
VGM Scores
At this time, The Charles Schwab Corporation has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, The Charles Schwab Corporation has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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The Charles Schwab Corporation (SCHW) Up 2.1% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for The Charles Schwab Corporation (SCHW - Free Report) . Shares have added about 2.1% 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 Q3 Earnings Beat Estimates, Revenues Down
Schwab’s third-quarter 2023 adjusted earnings of 77 cents per share beat the Zacks Consensus Estimate of 75 cents. The bottom line, however, declined 30% from the prior-year quarter.
Results benefited from the solid performance of the asset management business. The absence of fee waivers and solid brokerage account numbers acted as tailwinds during the quarter. However, lower revenues due to higher funding costs and lower volatility posed a major headwind. The company also recorded a rise in expenses.
Results excluded acquisition and integration-related costs, amortization of acquired intangibles and restructuring costs. After considering these, net income (GAAP basis) was $1.13 billion or 56 cents per share, down from $2.02 billion or 99 cents per share in the year-ago quarter. We had projected net income (GAAP) of $1.31 billion.
Revenues Decline, Expenses Rise
Quarterly net revenues were $4.61 billion, which fell 16% year over year. The decrease was mainly due to a 50% plunge in bank deposit fees, a 24% fall in NII and a 17% slide in trading revenues. These were partly offset by a 17% increase in asset management and administration fees. The top line also missed the Zacks Consensus Estimate of $4.64 billion.
Total non-interest expenses (GAAP basis) increased 14% to $3.22 billion. We had projected this metric to be $2.98 billion. Excluding non-recurring items, expenses were $2.7 billion, up 5%.
The company has identified “a number of opportunities for increased efficiency.” Once fully realized, these strategic actions are expected to deliver at least $1 billion of incremental annual expense savings.
Pre-tax profit margin decreased to 30% from 48.7% in the prior-year quarter.
At the end of the third quarter, Schwab’s average interest-earning assets decreased 23% year over year to $453.8 billion.
Annualized return on equity, as of Sep 30, 2023, was 14%, down from 25% in the prior-year quarter.
Other Business Metrics
As of Sep 30, 2023, Schwab had total client assets of $7.82 trillion (up 18% year over year). During the reported quarter, net new assets — brought by new and existing clients — were $48.2 billion.
Schwab added 0.9 million new brokerage accounts during the quarter. As of Sep 30, 2023, the company had 34.5 million active brokerage accounts, 1.8 million banking accounts and 2.5 million corporate retirement plan participants.
Outlook
NIM is expected to reach the 210-bps range by the fourth quarter of 2023. Moreover, Schwab expects NIM to expand to the 270-bps range by the end of 2024.
By the end of 2025, NIM is anticipated to reach 3%.
The company anticipates 2023 revenues to decline 8-9% year over year.
In 2023, GAAP expense growth of 9% is expected and the adjusted expense growth is anticipated to be 6%.
Management targets an incremental $500 million plus in run-rate expense savings beyond the remaining committed TDA deal synergies.
The company expects the one-time FDIC special assessment cost to impact GAAP and adjusted expenses by $160 million in the fourth quarter of 2023.
The company’s 2024 year-over-year expense growth is expected to be flat or slightly negative.
The adjusted tier 1 leverage ratio is expected to be above 6.5% by the end of 2024.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -8.51% due to these changes.
VGM Scores
At this time, The Charles Schwab Corporation has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, The Charles Schwab Corporation has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.