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Why an Earnings Beat is Likely for Schwab (SCHW) in Q3?


The Charles Schwab Corporation SCHW is scheduled to report third-quarter 2017 results on Oct 16, before the market opens. Its revenues and earnings are expected to grow year over year.

Last quarter, the company’s earnings were in line with the Zacks Consensus Estimate. Revenue growth, lower level of fee waivers and no provisions were among the positives. However, higher expenses and a decline in trading revenues remained headwinds.

The company boasts a decent earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in two of the trailing four quarters, with an average beat of 2.1%.

However, activities of Schwab during the third quarter were inadequate to win analysts’ confidence. Over the last 30 days, the Zacks Consensus Estimate for the quarter’s earnings remained stable at 41 cents. Nevertheless, it reflects a year-over-year improvement of 19.6%.

Additionally, the company’s revenues for the to-be-reported quarter are projected to be $2.19 billion. The figure is expected to witness growth of 14.2% year over year.

Schwab’s fundamental strength has helped its shares gain 40.9% in a year’s time, outperforming the 38.2% growth for the industry it belongs to.

The Charles Schwab Corporation Price and EPS Surprise

The Charles Schwab Corporation Price and EPS Surprise | The Charles Schwab Corporation Quote

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

A Positive Surprise in Store?

According to our quantitative model, chances of Schwab beating the Zacks Consensus Estimate in the to-be-reported quarter are high. This is because it has the right combination of the two key ingredients — a positive Earnings ESP and a 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.

Zacks ESP: The Earnings ESP for Schwab is +0.20%.

Zacks Rank: Schwab currently carries a Zacks Rank 3, which when combined with a positive ESP, increases the chances of an earnings beat.

Factors to Influence Q3 Results

Growth in Trading Revenue to Remain Muted: Owing to an unchanged monetary policy standpoint of the Fed, most part of the third quarter did not witness much volatility. Moreover, overall trading activities remained sluggish in the quarter in the absence of any tangible development on the reforms proposed by the Trump administration. However, Schwab opened 107,000 and 123,000 new brokerage accounts in July and August 2017, respectively, indicating that investors were somewhat interested in entering the market. Moreover, the company’s efforts to lower trading fees should have also helped add more brokerage accounts. Thus, the overall slump in trading revenues should not have affected Schwab much. Its trading revenues are expected to remain more or less stable.

Asset Growth Should Boost Net Interest Revenue: Schwab witnessed a rise in average interest-earning assets in July and August on a year-over-year basis. This should get reflected in the company’s results for the quarter as well. Hence, higher assets, along with improvement in the rate scenario, should help Schwab experience higher net interest revenues during the quarter.

Decline in Fee Waivers: Following the rate hikes in December 2016 and March 2017, Schwab witnessed a 98% year-over-year decline in its fee waivers in the second quarter, which helped the company, earn more. Moreover, we believe that following the latest rate hike in June, the company should have been able to waive off all of its fees. This should further boost its top-line growth in the to-be-reported quarter.

Other Stocks That Warrant a Look

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

Comerica Incorporated CMA is slated to release results on Oct 17. It has an Earnings ESP of +0.23% and carries a Zacks Rank 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Bank of New York Mellon Corporation BK has an Earnings ESP of +0.08% and carries a Zacks Rank 3. The company is slated to release results on Oct 19.

Associated Banc-Corp ASB is also scheduled to release results on Oct 19. It has an Earnings ESP of +1.96% and carries a Zacks Rank 3.

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