A month has gone by since the last earnings report for The Charles Schwab Corporation (SCHW Quick QuoteSCHW - Free Report) . Shares have added about 2.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Charles Schwab due for a pullback? 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 catalysts.

Schwab's Q2 Earnings & Revenues Meet, GAAP Expenses Decline Y/Y

Schwab’s second-quarter 2024 adjusted earnings of 73 cents per share met the Zacks Consensus Estimate. The bottom line, however, declined 3% from the prior-year quarter.

Results benefited from solid performance of the asset management business, which drove revenues. The absence of fee waivers and solid brokerage account numbers acted as tailwinds. However, higher funding costs posed a major headwind. The company also recorded a rise in adjusted expenses.

Results excluded acquisition and integration-related costs, amortization of acquired intangibles and restructuring costs. After considering these, net income (GAAP basis) was $1.33 billion or 66 cents per share, up from $1.29 billion or 64 cents per share in the year-ago quarter. We had projected net income (GAAP) of $1.44 billion.

Revenues Rise, GAAP Expenses Fall

Net revenues were $4.69 billion, which rose 1% year over year. The increase was mainly due to an 18% jump in asset management and administration fees. This was partly offset by a 6% fall in net interest income and a 3% slide in trading revenues. The top line matched the Zacks Consensus Estimate.

Total non-interest expenses (GAAP basis) decreased 1% to $2.94 billion. We had projected this metric to be $2.93 billion. Excluding non-recurring items, adjusted total expenses were $2.77 billion, up 2%. 

Pre-tax profit margin increased to 37.2% from 36.3% in the prior-year quarter.

At the end of the second quarter, Schwab’s average interest-earning assets decreased 14% to $419 billion.

As of Jun 30, 2024, the annualized return on equity was 14%, down from 17% in the prior-year quarter.

Other Business Metrics

As of Jun 30, 2024, Schwab had total client assets of $9.41 trillion (up 17% year over year). During the reported quarter, net new assets — brought by new and existing clients — were $74.2 billion.

Schwab added almost 1 million new brokerage accounts during the quarter. As of Jun 30, 2024, the company had 35.6 million active brokerage accounts, 1.93 million banking accounts and 5.4 million corporate retirement plan participants.

Outlook

Schwab continues to expect fourth-quarter 2024 adjusted quarterly earnings to track towards the middle of the 80-90 cents per share range, with meaningful opportunity for growth in 2025 and beyond.

Full-year 2024 revenues are expected to be flat to up 2% year over year.

The company expects NIM to expand to the 220-bps range by the fourth quarter of 2024. Then, NIM is expected to reach 3% by 2025 end. Fourth-quarter 2024 average interest-earning assets are expected to contract by 5-10% relative to the prior-year quarter.

Full-year 2024 adjusted expense growth of 2% is expected on a year over year basis. This reflects certain uncontrollable items such as the increase in the exchange processing fee rate, incremental FDIC special assessment, and accrual related to the industry-wide regulatory review of off-channel communications.

The daily average trading volume is expected to remain in line with the second quarter 2024 levels.

Schwab reiterated its long-term 5-7% annual growth trajectory in net new assets, with 3-5% NNA growth expected from existing clients and 2-3% improvement in NNA by attracting new clients.

Notably, on May 13, the company finished its fifth and final round of client account transitions associated with the TDA deal, marking the closure of “a historic integration.” And, it remains on track to complete the remaining integration-related work by this year's end.

These include decommissioning remaining systems and data centers, removing duplicative platforms as well as realizing the remaining almost 20% of the $1.8-$2 billion run-rate expense synergy target. The company expects TDA client attrition to finish favorable to its initial expectation of 5-6%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -7.58% due to these changes.

VGM Scores

At this time, Charles Schwab has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile 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. It's no surprise Charles Schwab has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.