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Why an Earnings Beat is Very Likely for Schwab (SCHW) in Q2

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The Charles Schwab Corporation (SCHW - Free Report) is scheduled to report second-quarter 2017 results on Jul 18, before the market opens. Its revenues and earnings are expected to grow year over year.

Last quarter, the company’s earnings outperformed the Zacks Consensus Estimate. Revenue growth, primarily driven by an increase in equity market volatility, lower level of fee waivers and absence of provisions were among the positives. These were, however, offset by higher expenses.

The company boasts a decent earnings surprise history, delivering an average beat of 2.1% in the trailing four quarters.

Schwab’s fundamental strength has helped its shares gain 9% year to date, outperforming the Zacks categorized Investment-Brokers industry’s almost flat performance.

Will the stock’s rally continue post second-quarter earnings release? Let’s see how things are shaping up.

Our proven model shows that Schwab has the right combination of two key ingredients — positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.

Zacks ESP: The Earnings ESP for Schwab is +2.56%. This is because the Most Accurate estimate of 40 cents is above the Zacks Consensus Estimate of 39 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Schwab has a Zacks Rank #3, which when combined with a positive ESP makes us reasonably confident of an earnings beat.
Factors to Influence Q2 Results

Trading Revenue to Improve: Equity markets and trading activities were decent during the quarter. This should have somewhat helped Schwab’s trading volumes. Moreover, the company opened 125,000 and 115,000 new brokerage accounts in April and May 2017, respectively, which indicates that investors were interested in entering the market.

Asset Growth Should Boost Net Interest Revenue: Schwab witnessed a rise in average interest-earning assets in April and May on a year-over-year basis. These assets, along with improvement in the rate scenario, may have helped Schwab experience higher net interest revenue during the quarter.

Decline in Fee Waivers: Following the rate hikes in December and March, Schwab witnessed a decline in almost all its fee waivers. This should have helped the company earn more in the to-be-reported quarter.
Activities of Schwab during the quarter were inadequate to win analysts’ confidence. Over the last seven days, the Zacks Consensus Estimate for the quarter’s earnings remained stable at 39 cents.

Other Stocks That Warrant a Look

Here are a few other finance stocks that you may want to consider, as they have the right combination of elements to post an earnings beat this quarter, according to our model.

Citizens Financial Group, Inc. (CFG - Free Report) is slated to report second-quarter results on Jul 21. It has an Earnings ESP of +1.70% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fifth Third Bancorp’s (FITB - Free Report) Earnings ESP is +2.38% and it carries a Zacks Rank #3. The company is expected to release second-quarter results on Jul 21.

Huntington Bancshares Incorporated (HBAN - Free Report) has an Earnings ESP of +4.35% and a Zacks Rank #3. It is scheduled to report second-quarter results on Jul 21.

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