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Subdued Market Volatility to Hurt Schwab's (SCHW) Q3 Earnings
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Charles Schwab (SCHW - Free Report) is scheduled to report third-quarter 2023 results on Oct 16, before market open. Its revenues and earnings in the quarter are expected to have declined on a year-over-year basis.
In the second quarter of 2023, Schwab’s earnings beat the Zacks Consensus Estimate. Results benefited from solid performance of the asset management business. The absence of fee waivers and solid brokerage account numbers acted as tailwinds. However, a fall in revenues due to higher funding costs, lower volatility and softer investor sentiments posed a major headwind.
The company has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in three and missed in one of the trailing four quarters.
The Charles Schwab Corporation Price and EPS Surprise
Schwab’s activities in the to-be-reported quarter did not encourage analysts to revise earnings estimates upward. In the past seven days, the Zacks Consensus Estimate for SCHW’s third-quarter earnings has been unchanged at 76 cents per share. The estimate indicates a decline of 30.9% from the year-ago quarter’s reported number. Our estimate for third-quarter earnings is pinned at 75 cents.
The consensus estimate for sales is pegged at $4.69 billion, which indicates a fall of 14.7% from the year-ago quarter’s reported figure. Our estimate for total revenues is also $4.69 billion.
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 & Estimates for Q3
While the risk of a near-term recession has faded, concerns like the economic slowdown, the central bank’s hawkish monetary policy and other geopolitical issues remain, which led to ambiguity among investors in the third quarter. Due to these factors, market volatility and client activity were subdued in the quarter.
In addition to these macro factors, SCHW’s trading performance is expected to have been impacted by the temporary attrition of TD Ameritrade clients and advisors.
In July and August, SCHW’s core net new assets declined 57% and 89% from the respective prior-year months because of client attrition.
Moreover, since the third quarter is a seasonally weak quarter for the capital markets, Schwab’s trading revenues are likely to have been hurt to some extent.
The Zacks Consensus Estimate for third-quarter trading revenues is pegged at $814 million, which suggests a decline of 12.5% from the prior-year quarter’s reported number. Our estimate for trading revenues is pinned at $795.7 million, indicating a decline of 14.4%.
Coming to net interest revenues, the consensus estimate for average interest-earning assets for the to-be-reported quarter is pegged at $461 billion, which suggests a decline of 21.5% from the prior-year quarter’s reported level.
While the Federal Reserve continued to tighten its monetary policy in the third quarter, raising interest rates by another 25 basis points in July, SCHW’s interest income is not expected to have improved much because of relatively weaker loan demand and an increase in funding costs.
Due to the economic uncertainty, Schwab has been forced to use other sources of funding to make up for the lack of cash flow. The company noted that it was turning to more expensive sources of funding, like borrowing from the Federal Home Loan Bank, to make up for its lack of cash flow.
The Zacks Consensus Estimate for third-quarter net interest revenues is pegged at $2.29 billion, which indicates a year-over-year decline of 21.8%. Our estimate for the metric is $2.48 billion, suggesting a decline of 15.2%.
Nevertheless, the consensus estimate for SCHW’s asset management and administration fees of $1.22 billion implies a rise of 16.7% from the prior-year quarter’s reported number. We project the metric to rise 8.8% to $1.14 billion.
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. We project total expenses of $2.98 billion for the quarter, implying a rise of 5.7% from the year-ago quarter.
What the Zacks Model Unveils
According to our quantitative model, the chances of Schwab beating the Zacks Consensus Estimate for earnings 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 -2.45%.
Zacks Rank: The company currently carries a Zacks Rank #3.
Stocks Worth A Look
A few finance stocks that you may want to consider, as these have the right combination of elements to post an earnings beat in the upcoming releases per our model, are Wells Fargo (WFC - Free Report) and PNC Financial (PNC - Free Report) .
PNC Financial is also scheduled to release third-quarter 2023 earnings on Oct 13. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +1.60%.
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Subdued Market Volatility to Hurt Schwab's (SCHW) Q3 Earnings
Charles Schwab (SCHW - Free Report) is scheduled to report third-quarter 2023 results on Oct 16, before market open. Its revenues and earnings in the quarter are expected to have declined on a year-over-year basis.
In the second quarter of 2023, Schwab’s earnings beat the Zacks Consensus Estimate. Results benefited from solid performance of the asset management business. The absence of fee waivers and solid brokerage account numbers acted as tailwinds. However, a fall in revenues due to higher funding costs, lower volatility and softer investor sentiments posed a major headwind.
The company has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in three and missed in one of the trailing four quarters.
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 did not encourage analysts to revise earnings estimates upward. In the past seven days, the Zacks Consensus Estimate for SCHW’s third-quarter earnings has been unchanged at 76 cents per share. The estimate indicates a decline of 30.9% from the year-ago quarter’s reported number. Our estimate for third-quarter earnings is pinned at 75 cents.
The consensus estimate for sales is pegged at $4.69 billion, which indicates a fall of 14.7% from the year-ago quarter’s reported figure. Our estimate for total revenues is also $4.69 billion.
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 & Estimates for Q3
While the risk of a near-term recession has faded, concerns like the economic slowdown, the central bank’s hawkish monetary policy and other geopolitical issues remain, which led to ambiguity among investors in the third quarter. Due to these factors, market volatility and client activity were subdued in the quarter.
In addition to these macro factors, SCHW’s trading performance is expected to have been impacted by the temporary attrition of TD Ameritrade clients and advisors.
In July and August, SCHW’s core net new assets declined 57% and 89% from the respective prior-year months because of client attrition.
Moreover, since the third quarter is a seasonally weak quarter for the capital markets, Schwab’s trading revenues are likely to have been hurt to some extent.
The Zacks Consensus Estimate for third-quarter trading revenues is pegged at $814 million, which suggests a decline of 12.5% from the prior-year quarter’s reported number. Our estimate for trading revenues is pinned at $795.7 million, indicating a decline of 14.4%.
Coming to net interest revenues, the consensus estimate for average interest-earning assets for the to-be-reported quarter is pegged at $461 billion, which suggests a decline of 21.5% from the prior-year quarter’s reported level.
While the Federal Reserve continued to tighten its monetary policy in the third quarter, raising interest rates by another 25 basis points in July, SCHW’s interest income is not expected to have improved much because of relatively weaker loan demand and an increase in funding costs.
Due to the economic uncertainty, Schwab has been forced to use other sources of funding to make up for the lack of cash flow. The company noted that it was turning to more expensive sources of funding, like borrowing from the Federal Home Loan Bank, to make up for its lack of cash flow.
The Zacks Consensus Estimate for third-quarter net interest revenues is pegged at $2.29 billion, which indicates a year-over-year decline of 21.8%. Our estimate for the metric is $2.48 billion, suggesting a decline of 15.2%.
Nevertheless, the consensus estimate for SCHW’s asset management and administration fees of $1.22 billion implies a rise of 16.7% from the prior-year quarter’s reported number. We project the metric to rise 8.8% to $1.14 billion.
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. We project total expenses of $2.98 billion for the quarter, implying a rise of 5.7% from the year-ago quarter.
What the Zacks Model Unveils
According to our quantitative model, the chances of Schwab beating the Zacks Consensus Estimate for earnings 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 -2.45%.
Zacks Rank: The company currently carries a Zacks Rank #3.
Stocks Worth A Look
A few finance stocks that you may want to consider, as these have the right combination of elements to post an earnings beat in the upcoming releases per our model, are Wells Fargo (WFC - Free Report) and PNC Financial (PNC - Free Report) .
The Earnings ESP for Wells Fargo is +3.83% and carries a Zacks Rank #3 at present. The company is slated to report third-quarter 2023 results on Oct 13. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
PNC Financial is also scheduled to release third-quarter 2023 earnings on Oct 13. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +1.60%.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.