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Normalized Trading to Hurt Schwab (SCHW) in Q3 Earnings

Charles Schwab SCHW is scheduled to report third-quarter 2021 results on Oct 15, before market open. Its revenues and earnings in the quarter are expected to have improved on a year-over-year basis.

In second-quarter 2021, Schwab’s earnings surpassed the Zacks Consensus Estimate. Results reflected solid client asset balances and a rise in new brokerage accounts, which were driven by strong client activity.

The company has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with an average beat of 4.5%.

The Charles Schwab Corporation Price and EPS Surprise

 

The Charles Schwab Corporation price-eps-surprise | The Charles Schwab Corporation Quote

 

Schwab’s activities in the to-be-reported quarter encouraged analysts to revise earnings estimates upward. In the past 30 days, the Zacks Consensus Estimate for its third-quarter earnings has been revised 1.3% higher to 80 cents. The estimate indicates an increase of 56.9% from the year-ago quarter’s reported number.

The consensus estimate for third-quarter sales is pegged at $4.52 billion, which suggests an increase of 84.5% from the year-ago quarter’s reported figure.

Now, before we take a look at what our quantitative model predicts, let’s check the factors that are likely to have impacted Schwab’s third-quarter performance.

Key Factors at Play

Unlike 2020 and the first few months of 2021, the third quarter did not encounter significant market volatility. While investors were interested in entering the markets, Schwab did not witness growth in new brokerage accounts.

In July, the company opened 402,000 new brokerage accounts, down 19% from the prior month’s levels. In August, new brokerage accounts remained unchanged at 402,000.

Because of market normalization and relatively low volatility, Schwab’s trading revenues are expected to have been hurt in the quarter under review.

The Zacks Consensus Estimate for third-quarter trading revenues is pegged at $850 million, which suggests a decline of 11% from the previous quarter’s reported number.

The consensus estimate for total client assets for the third quarter is pegged at $7.8 trillion, which indicates 2.7% growth sequentially. Also, the consensus estimate for average interest-earning assets of $555 billion suggests growth of 3.5% from the previous quarter’s levels.

Despite the continued low interest rate environment, Schwab’s net interest revenues are likely to have been positively impacted by expected growth in interest-earning assets. The steepening of the yield curve is expected to have provided further support. The Zacks Consensus Estimate for net interest revenues is pegged at $2.1 billion, which suggests a rise of 9% sequentially.

The consensus estimate for asset management and administration fees of $1.1 billion also suggests growth of 4.7%, sequentially.

Schwab’s operating expenses have been elevated in the past few quarters. Due to persistent regulatory spending and strategic buyouts to drive efficiency, overall expenses are expected to have been high in the to-be-reported quarter.

What the Zacks Model Unveils

According to our quantitative model, the chances of Schwab beating the Zacks Consensus Estimate this time are low. This is because it does not 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 -0.17%.

Zacks Rank: The company currently carries a Zacks Rank #2 (Buy).

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 in their upcoming releases, per our model.

Fifth Third Bancorp FITB is slated to report quarterly earnings on Oct 19. The company, which carries a Zacks Rank of 2 at present, has an Earnings ESP of +0.46%.

BankUnited, Inc. BKU is slated to report quarterly results on Oct 21. The company currently has an Earnings ESP of +1.90% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Capital One Financial Corporation COF is slated to report quarterly earnings on Oct 26. The company, which carries a Zacks Rank #2 at present, has an Earnings ESP of +8.43%.


5 Stocks Set to Double

Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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Fifth Third Bancorp (FITB): Free Stock Analysis Report
 
Capital One Financial Corporation (COF): Free Stock Analysis Report
 
The Charles Schwab Corporation (SCHW): Free Stock Analysis Report
 
BankUnited, Inc. (BKU): Free Stock Analysis Report
 
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