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Why Is Schwab (SCHW) Down 2.9% Since Last Earnings Report?

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A month has gone by since the last earnings report for Schwab (SCHW - Free Report) . Shares have lost about 2.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Schwab due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Schwab Beats on Q1 Earnings & Revenues, Costs Rise

Charles Schwab’s first-quarter 2019 earnings of 69 cents per share surpassed the Zacks Consensus Estimate of 66 cents. Also, earnings increased 25% from the prior-year quarter.

Revenue growth (driven by a rise in interest income) and an increase in total client assets aided the results. However, higher expenses and lower trading revenues acted as headwinds.

Net income available to common shareholders was $925 million, jumping 24% year over year.

Revenue Growth Offset by Rise in Expenses

Net revenues were $2.72 billion, up 14% year over year. The rise was supported by net interest revenues (up 33%) and other revenues (up 23%), partially offset by 11% fall in asset management and administration fees, and 8% decline in trading revenues. The reported figure outpaced the Zacks Consensus Estimate of $2.68 billion.

Total non-interest expenses increased 5% year over year to $1.46 billion. All expense components, except regulatory fees and assessments costs, and other expenses, increased on a year-over-year basis.

Pre-tax profit margin improved to 46.4% from 41.8%.

At the end of the first quarter, Schwab’s average interest-earning assets grew 15% year over year to $273.6 billion.

Annualized return on equity as of Mar 31, 2019, came in at 20%, up from 18% in the year-ago quarter.

Other Business Developments

As of Mar 31, 2019, Schwab had total client assets of $3.59 trillion (up 8% year over year). Also, net new assets — brought by new and existing clients — were $51.7 billion against outflows of $18.8 billion in new assets in the prior-year quarter.

Schwab added 386,000 new brokerage accounts in the reported quarter. As of Mar 31, 2019, the company had 11.9 million active brokerage accounts, 1.3 million banking accounts and 1.7 million corporate retirement plan participants.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, Schwab has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Schwab has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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