The Charles Schwab Corporation (SCHW Quick QuoteSCHW - Free Report) is scheduled to report its fourth-quarter and 2016 results on Jan 18, before the market opens.

This San Francisco-based investment broker beat the Zacks Consensus Estimate in the last quarter. Revenue growth, primarily driven by an increase in equity market volatility, and stable provisions were partly offset by higher expenses.

Notably, shares of Schwab gained more than 25% during fourth-quarter 2016, given the gradual improvement in operating environment and the recent Fed rate hike. This optimism also led analysts to be bullish on the stock. The Zacks Consensus Estimate moved upward over the last 30 days, with seven estimates moving up and just two moving lower.

Further, the estimate reflects a year-over-year improvement of 42.2%. Also, the company has a decent earnings surprise history, as evident from the chart below:

The Charles Schwab Corporation Price and EPS Surprise

 

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

Factors to Impact Q4 Results

Will Schwab be again able to surpass estimates, given the increased volatility? Let’s see how things have shaped up for this announcement.

Diversified Revenue Streams: Schwab has emerged as a big player in the investment market, with its wide variety of investment services and online trading system. In addition, the company’s expanding focus on exchange-traded funds and management’s aggressive efforts to increase client base in advisory solutions will help it gain market share, thus boosting top-line growth.

Trading Revenue: Significant equity market volatility during the quarter should drive Schwab’s daily trading volumes. Further, the company opened 84,000 and 93,000 new brokerage accounts in Oct and Nov 2016, respectively (based on monthly reports released by the company), which indicates that investors were interested in entering the market. So, trading revenue is likely to have trended upward in the quarter.

Asset Growth: Schwab recorded a substantial rise in average interest-earning assets in October and November. Growth in these assets, along with an improvement in LIBOR rates and an increase in client margin loan balances should boost net interest income in the to-be-reported quarter. Hence, a modest improvement in net interest margin is also anticipated, on a sequential basis.

Decline in Fee Waivers: Following the Fed’s rate hike in Dec 2016, Schwab has been witnessing a steady decline in fee waivers.  We believe the same trend to continue in the fourth quarter as well, with further rise in the Fed interest rate in mid December.

Rising Expenses: Operating expenses are expected to increase year over year as Schwab continues to incur costs related to compensation and regulatory spending. Nonetheless, the company will continue to use its flexibility to manage expenses, in order to adjust to the economic environment.

Earnings Whispers

Our proven model doesn’t conclusively show that Schwab will beat the Zacks Consensus Estimate in the fourth quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #3 (Hold) or better for this to happen.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: The Earnings ESP for Schwab is 0.00%. This is because the Most Accurate Estimate of 36 cents is on par with the Zacks Consensus Estimate.

Zacks Rank: Schwab’s Zacks Rank #1 (Strong Buy) increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of a positive earnings surprise.

Notably, the Zacks Consensus Estimate has increased 2.9% to 36 cents in the past 30 days.

Stocks That Warrant a Look

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

Citigroup Inc. (C Quick QuoteC - Free Report) is scheduled to report results on Jan 18. It has an Earnings ESP of +1.79% and carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Bank of the Ozarks, Inc. is slated to release results on Jan 17. It has an Earnings ESP of +1.45% and carries a Zacks Rank #2.

KeyCorp (KEY Quick QuoteKEY - Free Report) has an Earnings ESP of +6.90% and carries a Zacks Rank #2. The company is slated to release results on Jan 19.

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