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High Market Volatility, Lower Rates to Aid Schwab's Q4 Earnings
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Charles Schwab (SCHW - Free Report) is scheduled to report fourth-quarter and full-year 2024 results on Jan. 21 before the market opens. The company’s quarterly earnings and revenues are expected to have grown on a year-over-year basis.
See the Zacks Earnings Calendar to stay ahead of market-making news.
Schwab’s third-quarter earnings beat the Zacks Consensus Estimate. Results benefited from the solid performance of the asset management business. The absence of fee waivers and solid brokerage account numbers acted as tailwinds. However, higher funding costs and a rise in adjusted expenses were the undermining factors.
The company has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and met in one, with the average beat being 2.17%.
The Charles Schwab Corporation Price and EPS Surprise
Before we take a look at what our quantitative model predicts, let us check the factors that are likely to have impacted Schwab’s fourth-quarter performance.
Major Factors to Impact Schwab’s Q4 Performance
Trading Revenues: Client activity was solid during the fourth quarter. The likelihood of robust U.S. economic growth, cooling inflation, the presidential poll results and clarity on the interest rate path majorly drove client activity. In October and November, SCHW’s core net new assets surged substantially from the prior-year months. Also, the number of new brokerage accounts opened grew 17% and 25% in October and November, respectively, on a year-over-year basis.
Further, volatility was high in equity markets and other asset classes, including commodities, bonds and foreign exchange. Thus, Schwab is expected to have witnessed a decent rise in trading revenues in the to-be-reported quarter. The Zacks Consensus Estimate for trading revenues is pegged at $833.1 million, which suggests an 8.6% increase from the prior-year quarter. Our estimate for trading revenues is pinned at $856.6 million.
Net Interest Revenues: The consensus estimate for SCHW’s average interest-earning assets for the to-be-reported quarter is pegged at $426.4 billion, suggesting a decline of 3.4% year over year. This is in line with the company’s efforts to shrink its balance sheet. Management expects average interest-earning assets to fall 3-6% year over year.
Also, the Federal Reserve lowered interest rates by 50 basis points (bps) during the fourth quarter. This is likely to have supported SCHW’s net interest revenues as funding costs come down. The Zacks Consensus Estimate for net interest revenues is pegged at $2.43 billion, indicating year-over-year growth of 13.9%. Our estimate for the metric is $2.42 billion.
The company expects NIM to expand to around 220 bps in the fourth quarter of 2024, driven by lower liability funding costs.
Asset Management and Administration Fees: Led by solid equity market performance, SCHW is likely to have recorded a decent improvement in asset management and administration fees. For October and November, Schwab’s client assets receiving ongoing advisory services grew 27% and 24%, respectively, from the prior-year months. The consensus estimate for asset management and administration fees of $1.51 billion implies a jump of 21.9%. We project the metric to rise to $1.47 billion.
Expenses: Schwab’s operating expenses have been elevated in the past few quarters. Due to persistent regulatory spending and strategic buyouts, expenses are expected to have been high in the to-be-reported quarter. The company anticipates post-TDA integration charges to be almost $23 million.
We project total expenses of $2.97 billion for the quarter.
SCHW’s Outlook for 2024
Management projects revenues to grow 3-3.5%. This is up from the earlier target of 2-3%. The change in the outlook is driven by increased investor engagement, post-election equity market strength and the continued stabilization of client transactional sweep cash balances.
Adjusted expenses are expected to rise approximately 2%. This reflects certain uncontrollable items such as the exchange processing fee rate increase, incremental FDIC special assessment and accrual related to the industry-wide regulatory review of off-channel communications.
What the Zacks Model Unveils for Schwab
According to our quantitative model, the chances of Schwab beating the Zacks Consensus Estimate for earnings this time are low. This is because it doesn’t 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 -0.26%.
Zacks Rank: The company currently carries a Zacks Rank #2 (Buy).
SCHW’s Q4 Earnings & Sales Estimates
In the past seven days, the Zacks Consensus Estimate for fourth-quarter earnings has been revised 1.1% upward to 90 cents per share. The estimate indicates a jump of 32.4% from the year-ago quarter.
Schwab expects quarterly adjusted earnings to track toward the upper end of the 80 cents per share range.
The consensus estimate for sales is pegged at $5.16 billion, which indicates a 15.8% rise.
Stocks Worth a Look
Here are a couple of finance stocks that 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:
Over the past seven days, the Zacks Consensus Estimate for TFC’s quarterly earnings has moved 1.1% lower to 87 cents.
The Earnings ESP for State Street (STT - Free Report) is +0.67% and it carries a Zacks Rank #3 at present. The company is also slated to report quarterly results on Jan. 17.
STT’s quarterly earnings estimates have been revised almost 1% upward to $2.42 over the past week.
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High Market Volatility, Lower Rates to Aid Schwab's Q4 Earnings
Charles Schwab (SCHW - Free Report) is scheduled to report fourth-quarter and full-year 2024 results on Jan. 21 before the market opens. The company’s quarterly earnings and revenues are expected to have grown on a year-over-year basis.
See the Zacks Earnings Calendar to stay ahead of market-making news.
Schwab’s third-quarter earnings beat the Zacks Consensus Estimate. Results benefited from the solid performance of the asset management business. The absence of fee waivers and solid brokerage account numbers acted as tailwinds. However, higher funding costs and a rise in adjusted expenses were the undermining factors.
The company has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and met in one, with the average beat being 2.17%.
The Charles Schwab Corporation Price and EPS Surprise
The Charles Schwab Corporation price-eps-surprise | The Charles Schwab Corporation Quote
Before we take a look at what our quantitative model predicts, let us check the factors that are likely to have impacted Schwab’s fourth-quarter performance.
Major Factors to Impact Schwab’s Q4 Performance
Trading Revenues: Client activity was solid during the fourth quarter. The likelihood of robust U.S. economic growth, cooling inflation, the presidential poll results and clarity on the interest rate path majorly drove client activity. In October and November, SCHW’s core net new assets surged substantially from the prior-year months. Also, the number of new brokerage accounts opened grew 17% and 25% in October and November, respectively, on a year-over-year basis.
Further, volatility was high in equity markets and other asset classes, including commodities, bonds and foreign exchange. Thus, Schwab is expected to have witnessed a decent rise in trading revenues in the to-be-reported quarter. The Zacks Consensus Estimate for trading revenues is pegged at $833.1 million, which suggests an 8.6% increase from the prior-year quarter. Our estimate for trading revenues is pinned at $856.6 million.
Net Interest Revenues: The consensus estimate for SCHW’s average interest-earning assets for the to-be-reported quarter is pegged at $426.4 billion, suggesting a decline of 3.4% year over year. This is in line with the company’s efforts to shrink its balance sheet. Management expects average interest-earning assets to fall 3-6% year over year.
Also, the Federal Reserve lowered interest rates by 50 basis points (bps) during the fourth quarter. This is likely to have supported SCHW’s net interest revenues as funding costs come down. The Zacks Consensus Estimate for net interest revenues is pegged at $2.43 billion, indicating year-over-year growth of 13.9%. Our estimate for the metric is $2.42 billion.
The company expects NIM to expand to around 220 bps in the fourth quarter of 2024, driven by lower liability funding costs.
Asset Management and Administration Fees: Led by solid equity market performance, SCHW is likely to have recorded a decent improvement in asset management and administration fees. For October and November, Schwab’s client assets receiving ongoing advisory services grew 27% and 24%, respectively, from the prior-year months. The consensus estimate for asset management and administration fees of $1.51 billion implies a jump of 21.9%. We project the metric to rise to $1.47 billion.
Expenses: Schwab’s operating expenses have been elevated in the past few quarters. Due to persistent regulatory spending and strategic buyouts, expenses are expected to have been high in the to-be-reported quarter. The company anticipates post-TDA integration charges to be almost $23 million.
We project total expenses of $2.97 billion for the quarter.
SCHW’s Outlook for 2024
Management projects revenues to grow 3-3.5%. This is up from the earlier target of 2-3%. The change in the outlook is driven by increased investor engagement, post-election equity market strength and the continued stabilization of client transactional sweep cash balances.
Adjusted expenses are expected to rise approximately 2%. This reflects certain uncontrollable items such as the exchange processing fee rate increase, incremental FDIC special assessment and accrual related to the industry-wide regulatory review of off-channel communications.
What the Zacks Model Unveils for Schwab
According to our quantitative model, the chances of Schwab beating the Zacks Consensus Estimate for earnings this time are low. This is because it doesn’t 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 -0.26%.
Zacks Rank: The company currently carries a Zacks Rank #2 (Buy).
SCHW’s Q4 Earnings & Sales Estimates
In the past seven days, the Zacks Consensus Estimate for fourth-quarter earnings has been revised 1.1% upward to 90 cents per share. The estimate indicates a jump of 32.4% from the year-ago quarter.
Schwab expects quarterly adjusted earnings to track toward the upper end of the 80 cents per share range.
The consensus estimate for sales is pegged at $5.16 billion, which indicates a 15.8% rise.
Stocks Worth a Look
Here are a couple of finance stocks that 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:
Truist Financial (TFC - Free Report) is scheduled to release quarterly earnings on Jan. 17. The company has a Zacks Rank #3 and an Earnings ESP of +1.45% at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Over the past seven days, the Zacks Consensus Estimate for TFC’s quarterly earnings has moved 1.1% lower to 87 cents.
The Earnings ESP for State Street (STT - Free Report) is +0.67% and it carries a Zacks Rank #3 at present. The company is also slated to report quarterly results on Jan. 17.
STT’s quarterly earnings estimates have been revised almost 1% upward to $2.42 over the past week.