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Client Activity & High Rates to Aid Schwab (Schw) Q3 Earnings


The Charles Schwab Corporation SCHW is scheduled to report third-quarter 2018 results on Oct 15, before the market opens. Its revenues and earnings are projected to grow year over year.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Revenue growth, significant rise in total client assets and new brokerage accounts were among the positives. However, higher expenses remained a headwind.

In fact, the company has an impressive earnings surprise history as its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with an average positive surprise of 3.8%.

The Charles Schwab Corporation Price and EPS Surprise

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

Moreover, activities of Schwab during the third quarter encouraged analysts to revise earnings estimates upward. Over the past 30 days, its Zacks Consensus Estimate for the to-be-reported quarter has increased 1.6% to 64 cents. Moreover, the figure reflects a year-over-year improvement of 52.4%.

Notably, Schwab’s fundamental strength has helped its shares gain 7.6% in the past year against 3.9% decline recorded by the industry.

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

Factors to Influence Q3 Results

After an impressive first-half 2018, in terms of significant market volatility, client activity remained in the lower side during the third quarter. Nevertheless, Schwab opened 118,000 and 132,000 new brokerage accounts in July and August, respectively, indicating that investors were somewhat interested in entering the market. Further, the company’s efforts toward lowering trading fees should have helped in adding more brokerage accounts during the quarter. The Zacks Consensus Estimate for active brokerage accounts for the third quarter of 11,359 reflects a year-over-year improvement of 7.5%.

While market volatility during the third quarter slowed down in comparison with the first two quarters of the year, Schwab’s trading revenues are expected to witness some improvement, supported by decent growth in brokerage accounts.

Further, Schwab witnessed rise in total client assets and average interest-earning assets in July and August, on a year-over-year basis. This will get reflected in the company’s results for the entire quarter.

In fact, the Zacks Consensus Estimate for total client assets for the to-be-reported quarter is $3.5 trillion, reflecting year-over-year growth of 10.5%. Moreover, the consensus estimate for average interest earning assets for the quarter is $259 billion, which shows growth of 21% year over year. Hence, higher assets, along with an improvement in the rate scenario, will likely help Schwab experience higher net interest revenues during the quarter.

Improvement in the two most important components of Schwab’s revenues is expected to support overall revenue growth in the quarter under review. The Zacks Consensus Estimate for sales for the to-be-reported quarter is $2.57 billion, which reflects year-over-year increase of 18.6%.

However, the company’s operating expenses have remained elevated for the past few quarters. Moreover, because of higher compensation and benefits costs, overall expenses are expected to remain high in the third 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 third quarter are high. This is because it has 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 +0.28%.

Zacks Rank: Schwab currently has a Zacks Rank #2 (Buy), which, when combined with a positive ESP, further increases the chance of an earnings beat.

Other Stocks Worth a Look

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

Ameriprise Financial, Inc. AMP is slated to release results on Oct 23. It has an Earnings ESP of +4.30% and it currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

T. Rowe Price Group, Inc. TROW is scheduled to release results on Oct 25. It has an Earnings ESP of +0.61% and a Zacks Rank #2.

Ally Financial Inc. ALLY has an Earnings ESP of +0.50% and carries a Zacks Rank of 3. The company is also slated to release results on Oct 25.

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