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The Charles Schwab Corporation (SCHW) Down 8.5% Since Last Earnings Report: Can It Rebound?
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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 8.5% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Schwab Q2 Earnings and Revenues Beat, Expenses Rise
Schwab’s second-quarter 2023 adjusted earnings of 75 cents per share beat the Zacks Consensus Estimate of 73 cents. The bottom line, however, declined 25% from the prior-year quarter.
Results benefited from the solid performance of the asset management business. Also, the absence of fee waivers and solid brokerage account numbers acted as tailwinds during the quarter.
However, fall in revenues due to higher funding costs, lower volatility and softer investor sentiments posed a major headwind. The company also recorded a rise in expenses.
Results excluded acquisition and integration-related costs and amortization of acquired intangibles. After considering these, net income (GAAP basis) was $1.3 billion or 64 cents per share, down from $1.8 billion or 87 cents per share in the year-ago quarter. We had projected net income (GAAP) of $1.6 billion.
Revenues Decline, Expenses Rise
Quarterly net revenues were $4.66 billion, which fell 9% year over year. The decrease was mainly due to a 50% plunge in bank deposit fees, a 10% fall in NII and a 9% slide in trading revenues. These were partly offset by a 12% increase in asset management and administration fees. The top line, however, beat the Zacks Consensus Estimate of $4.61 billion.
Total non-interest expenses (GAAP basis) increased 5% to $3 billion. We had projected this metric to be $2.6 billion. Excluding non-recurring items, expenses were $2.7 billion, up 5%.
The company recorded no fee waivers in the quarter compared with $3 million in the prior-year quarter.
Pre-tax profit margin decreased to 36.3% from 44.6% in the prior-year quarter.
At the end of the second quarter, Schwab’s average interest-earning assets decreased 22% year over year to $485.4 billion.
Annualized return on equity, as of Jun 30, 2023, was 17%, down from 19% in the prior-year quarter.
Other Business Metrics
As of Jun 30, 2023, Schwab had total client assets of $8.02 trillion (up 17% year over year). During the reported quarter, net new assets — brought by new and existing clients — were $72 billion.
Schwab added 0.7 million new brokerage accounts during the quarter. As of Jun 30, 2023, the company had 34.4 million active brokerage accounts, 1.8 million banking accounts and 2.4 million corporate retirement plan participants.
Outlook
NIM is expected to reach the 210-bps range by the fourth quarter of 2023. Moreover, Schwab expects NIM to expand to the 270-bps range by the end of 2024, with further expansion to 3% during late 2025.
The company anticipates 2023 revenues to decline 7-8% year over year.
In 2023, GAAP and adjusted expense growth of 6% is expected.
Management targets an incremental $500 million plus in run-rate expense savings beyond the remaining committed TDA deal synergies.
If the savings are realized, the company’s 2024 year-over-year expense growth might be flat or slightly negative.
The consolidated adjusted tier 1 leverage ratio is expected to reach 5% by 2023-end and be at least 6.5% before 2025.
Update on TDA Deal
SCHW expects to complete most remaining client transitions from TD Ameritrade to Schwab across two groups over the remainder of 2023, with the transition of a small client group in the first half of 2024.
The company expects to incur total acquisition and integration-related costs and capital expenditure of $2.4-$2.5 billion.
Total synergies are estimated to be $4.3 to $4.8 billion. Over the course of the integration, the company expects to realize annualized cost synergies of $1.8-$2 billion. Through Jun 30, 2023, approximately 75% of this amount was realized on an annualized run-rate basis.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
At this time, The Charles Schwab Corporation 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
Estimates have been trending downward for the stock, and the magnitude of these revisions looks promising. Notably, The Charles Schwab Corporation has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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The Charles Schwab Corporation (SCHW) Down 8.5% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for The Charles Schwab Corporation (SCHW - Free Report) . Shares have lost about 8.5% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Schwab Q2 Earnings and Revenues Beat, Expenses Rise
Schwab’s second-quarter 2023 adjusted earnings of 75 cents per share beat the Zacks Consensus Estimate of 73 cents. The bottom line, however, declined 25% from the prior-year quarter.
Results benefited from the solid performance of the asset management business. Also, the absence of fee waivers and solid brokerage account numbers acted as tailwinds during the quarter.
However, fall in revenues due to higher funding costs, lower volatility and softer investor sentiments posed a major headwind. The company also recorded a rise in expenses.
Results excluded acquisition and integration-related costs and amortization of acquired intangibles. After considering these, net income (GAAP basis) was $1.3 billion or 64 cents per share, down from $1.8 billion or 87 cents per share in the year-ago quarter. We had projected net income (GAAP) of $1.6 billion.
Revenues Decline, Expenses Rise
Quarterly net revenues were $4.66 billion, which fell 9% year over year. The decrease was mainly due to a 50% plunge in bank deposit fees, a 10% fall in NII and a 9% slide in trading revenues. These were partly offset by a 12% increase in asset management and administration fees. The top line, however, beat the Zacks Consensus Estimate of $4.61 billion.
Total non-interest expenses (GAAP basis) increased 5% to $3 billion. We had projected this metric to be $2.6 billion. Excluding non-recurring items, expenses were $2.7 billion, up 5%.
The company recorded no fee waivers in the quarter compared with $3 million in the prior-year quarter.
Pre-tax profit margin decreased to 36.3% from 44.6% in the prior-year quarter.
At the end of the second quarter, Schwab’s average interest-earning assets decreased 22% year over year to $485.4 billion.
Annualized return on equity, as of Jun 30, 2023, was 17%, down from 19% in the prior-year quarter.
Other Business Metrics
As of Jun 30, 2023, Schwab had total client assets of $8.02 trillion (up 17% year over year). During the reported quarter, net new assets — brought by new and existing clients — were $72 billion.
Schwab added 0.7 million new brokerage accounts during the quarter. As of Jun 30, 2023, the company had 34.4 million active brokerage accounts, 1.8 million banking accounts and 2.4 million corporate retirement plan participants.
Outlook
NIM is expected to reach the 210-bps range by the fourth quarter of 2023. Moreover, Schwab expects NIM to expand to the 270-bps range by the end of 2024, with further expansion to 3% during late 2025.
The company anticipates 2023 revenues to decline 7-8% year over year.
In 2023, GAAP and adjusted expense growth of 6% is expected.
Management targets an incremental $500 million plus in run-rate expense savings beyond the remaining committed TDA deal synergies.
If the savings are realized, the company’s 2024 year-over-year expense growth might be flat or slightly negative.
The consolidated adjusted tier 1 leverage ratio is expected to reach 5% by 2023-end and be at least 6.5% before 2025.
Update on TDA Deal
SCHW expects to complete most remaining client transitions from TD Ameritrade to Schwab across two groups over the remainder of 2023, with the transition of a small client group in the first half of 2024.
The company expects to incur total acquisition and integration-related costs and capital expenditure of $2.4-$2.5 billion.
Total synergies are estimated to be $4.3 to $4.8 billion. Over the course of the integration, the company expects to realize annualized cost synergies of $1.8-$2 billion. Through Jun 30, 2023, approximately 75% of this amount was realized on an annualized run-rate basis.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
At this time, The Charles Schwab Corporation 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
Estimates have been trending downward for the stock, and the magnitude of these revisions looks promising. Notably, The Charles Schwab Corporation has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.