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Will Lower Volatility Hamper Schwab (SCHW) Q1 Earnings?

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The Charles Schwab Corporation (SCHW - Free Report) is scheduled to report first-quarter 2019 results on Apr 15, before the market opens. Its revenues and earnings for the to-be-reported quarter are projected to grow year over year.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Revenue growth and absence of fee waivers aided results. However, higher expenses remained a headwind.

In fact, the company has an impressive earnings surprise history as earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average positive surprise being 2.1%.

However, activities of Schwab during the first quarter failed to encourage analysts to revise earnings estimates upward. Over the past 30 days, its Zacks Consensus Estimate for earnings for the to-be-reported quarter has decreased 1.5% to 66 cents. Nevertheless, the figure reflects a year-over-year improvement of 20%.

The Zacks Consensus Estimate for sales for the to-be-reported quarter is pegged at $2.68 billion, which reflects a year-over-year increase of 11.6%.

Notably, Schwab’s shares have gained merely 1% in the past three months compared with 4% growth recorded by the industry.

Will the price performance improve post first-quarter earnings release? Let’s see how things are shaping up.

Factors to Influence Q1 Results

During the first quarter, some concerns like continued uncertainty related to Brexit and U.S.-China trade war along with expectations of global economic slowdown resulted in lower market volatility, which ultimately led to a decline in overall client activity.

However, Schwab opened 131,000 and 115,000 new brokerage accounts in January and February, respectively, indicating that investors were somewhat interested in entering the market. Moreover, the Zacks Consensus Estimate for active brokerage accounts for the first quarter of 11,771 reflects year-over-year improvement of nearly 7%.

Thus, despite lower volatility and decline in client activity, Schwab’s trading revenues are not expected to witness a drastic decline in the first quarter.

Notably, while Schwab witnessed a slight year-over-year decline in total client assets in January, the same increased in February. Moreover, the company witnessed rise in average interest-earning assets in January and February, on a year-over-year basis. This should get reflected in Schwab’s results for the entire quarter.

In fact, the Zacks Consensus Estimate for total client assets for the to-be-reported quarter is pegged at $3.4 trillion, reflecting year-over-year growth of 4%. Moreover, the consensus estimate for average interest-earning assets for the quarter is $277 billion, which shows growth of 14.9% year over year. Hence, growth in assets along with higher interest rates will likely lead to rise in net interest revenues during the quarter.

However, the company’s operating expenses have remained elevated in the past few quarters. Moreover, because of higher compensation and benefits costs, overall expenses are expected to remain high in the first quarter.

Now, let’s see what our quantitative model predicts.

According to our quantitative model, chances of Schwab beating the Zacks Consensus Estimate in the first quarter are low. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — which is required to be confident of an earnings surprise call.

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 -1.05%.

Zacks Rank: Schwab currently carries a Zacks Rank #3. While this increases the predictive power of ESP, we also need a positive ESP to be confident of an earnings beat.

Stocks Worth a Look

Here are some finance stocks that you may want to consider as these have the right combination of elements to post an earnings beat this quarter, per our model.

TD Ameritrade Holding Corporation AMTD is slated to release results on Apr 23. It has an Earnings ESP of +0.15% and currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BankUnited, Inc. BKU has an Earnings ESP of +1.89% and carries a Zacks Rank of 3 at present. The company is slated to release results on Apr 24.

Ares Capital Corporation ARCC is expected to release results on Apr 30. It presently has an Earnings ESP of +0.53% and a Zacks Rank #2 (Buy).

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