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Why Is The Charles Schwab Corporation (SCHW) Down 2.4% Since Last Earnings Report?

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A month has gone by since the last earnings report for The Charles Schwab Corporation (SCHW - Free Report) . Shares have lost about 2.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is The Charles Schwab Corporation 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 Q4 Earnings & Revenues Lag Estimates, Costs Dip

Schwab’s fourth-quarter 2021 adjusted earnings of 86 cents per share missed the Zacks Consensus Estimate of 88 cents. The bottom line, however, grew 16% from the prior-year quarter.

Results reflect solid client assets balance and a rise in new brokerage accounts. These were driven by solid client activity, which supported revenues during the quarter. A slight dip in operating expenses was a tailwind. However, fee waivers and lower interest rates were a drag.

Results excluded acquisition and integration-related costs and amortization of acquired intangibles. After considering these, net income available to common shareholders (GAAP basis) was $1.58 billion or 76 cents per share, up from $1.14 billion or 57 cents per share in the year-ago quarter.

For 2021, adjusted earnings per share of $3.25 lagged the consensus estimate of $3.27 but grew 33% year over year. Net income available to common shareholders (GAAP basis) was $5.86 billion or $2.83 per share, up from $3.30 billion or $2.12 per share in 2020.

Revenues Rise, Expenses Down

Net revenues in the quarter were $4.71 billion, rising 13% year over year. The rise was driven by improvement in all revenue components except bank deposit account fees and other revenues. The top line missed the Zacks Consensus Estimate of $4.84 billion.

In 2021, net revenues rose 58% from the prior year to $18.52 billion. The top line lagged the Zacks Consensus Estimate of $18.59 billion.

Total non-interest expenses (GAAP basis) declined 1% year over year to $2.69 billion. Excluding non-recurring items, expenses were $2.43 billion, up 7%.

The company recorded fee waivers of $80 million in the quarter compared with $68 million in the prior-year quarter.

Pre-tax profit margin rose to 43.0% from 35.3% in the prior-year quarter.

At the end of the fourth quarter, Schwab’s average interest-earning assets increased 27% year over year to $588.1 billion.

Annualized return on equity, as of Dec 31, 2021, was 12%, up from 11% in the prior-year quarter.

Other Business Metrics

As of Dec 31, 2021, Schwab had total client assets of $8.14 trillion (up 22% year over year). During the reported quarter, net new assets — brought by new and existing clients — were $134.8 billion.

Schwab added 1.32 million new brokerage accounts during the quarter. As of Dec 31, 2021, the company had 33.2 million active brokerage accounts, 1.5 million banking accounts and 2.2 million corporate retirement plan participants.

2022 Outlook

The outlook assumes three interest rate hikes (starting in March 2022), the S&P 500 appreciating 6.5% and long-term rates of 1.65%.

Management expects revenue growth of 9-10%. Adjusted total expenses are anticipated to rise 6-7%. The company expects an adjusted pre-tax profit margin of 48% or more.

Full-year NIM is anticipated to be in the low 150 bps.

Update on TDA Deal

Management expects to complete client conversion in 2023. The company projects to invest $2-$2.2 billion in total one-time integration expenses.

Total synergies are estimated to be $4.3 to $4.8 billion. The company achieved 50% of the anticipated cost savings by fourth-quarter 2021 end. It anticipates achieving $1.8-$2 billion in run-rate expense synergy within four years of the deal closure.

Further, strong volume growth and newly identified opportunities strengthen the company’s outlook for revenue synergies. The company remains on track to achieve its run-rate revenue

synergy target of $2.5-$2.8 billion. Notably, in 2021, it achieved $160 million of revenue synergies.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, The Charles Schwab Corporation has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, 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

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, The Charles Schwab Corporation has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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