Schwab (SCHW) To Report Q4 Earnings: Will It Beat Estimates?

The Charles Schwab Corporation (NYSE:SCHW) is expected to report fourth-quarter and full year 2017 results on Jan 17, before market open. Its revenues and earnings are expected to grow year over year.

Last quarter, the company’s earnings marginally surpassed the Zacks Consensus Estimate. Revenue growth, lower level of fee waivers, no provisions and a significant rise in total client assets and new brokerage accounts were among the positives. However, higher expenses and a decrease in trading revenues remained headwinds.

Moreover, the company has a decent earnings surprise history as its earnings have not lagged the Zacks Consensus Estimate in any of the trailing four quarters. It delivered an average positive earnings surprise of nearly 2%.

However, activities of Schwab during the fourth quarter were inadequate to win analysts’ confidence. Thus, over the last 30 days, its Zacks Consensus Estimate for the quarter’s earnings remained stable at 41 cents. Nevertheless, it reflects a year-over-year improvement of 13.9%.

Notably, Schwab’s fundamental strength has helped its shares gain 30.1% in 2017, outperforming the 19.5% growth for the industry it belongs to.

Will the stock’s rally continue post fourth-quarter earnings release? Let’s see how things are shaping up.

Earnings Whispers

According to our quantitative model, chances of Schwab beating the Zacks Consensus Estimate in the fourth quarter 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 — which is required to be confident of an earnings surprise call.

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 -0.72%.

Zacks Rank: Schwab currently sports a Zacks Rank #1 (Strong Buy), which increases the predictive power of ESP. However, we also need a positive ESP to be confident of an earnings beat.

Factors to Influence Q4 Results

Although, market volatility did not improve much in the fourth quarter when compared with the prior-year quarter, overall trading activities remained relatively decent. Moreover, Schwab opened 117,000 and 122,000 new brokerage accounts in October and November 2017, respectively, indicating that investors were somewhat interested in entering the market. Also, the company’s efforts toward lowering trading fees should have helped in adding more brokerage accounts. The Zacks Consensus Estimate for active brokerage accounts for the fourth quarter is 10,696, which is projected to witness year-over-year improvement of 5.3%.

Thus, with the growth in brokerage accounts, trading revenues might have witnessed modest improvement in the quarter.

Further, Schwab witnessed a rise in total client assets and average interest-earning assets in October and November on a year-over-year basis. This should reflect in the company’s results for the quarter as well.

In fact, the Zacks Consensus Estimate for total client assets for the quarter is $3.3 trillion, reflecting year-over-year growth of 18.2%. Also, the Zacks Consensus Estimate for average interest earning assets for the quarter is $220 billion, which is expected to grow 6.3% year over year. Hence, higher assets, along with improvement in the rate scenario, should help Schwab experience higher net interest revenues during the quarter.

Improvement in the two most important components of Schwab’s revenues should support overall revenue growth in the quarter as well. The Zacks Consensus Estimate for revenues is projected to be $2.23 billion. The figure is expected to witness growth of 12.9% year over year.

However, Schwab’s operating expenses have remained elevated since the past few quarters. Moreover, because of higher compensation and benefits cost, overall expenses are expected to remain high in the fourth quarter as well.

Stocks That Warrant a Look

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

BB&T Corporation (NYSE:BBT) is slated to release results on Jan 18. It has an Earnings ESP of +0.33% and carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Bank of New York Mellon Corporation (NYSE:BK) has an Earnings ESP of +0.16% and carries a Zacks Rank of 3. The company is also slated to release results on Jan 18.

SunTrust Banks, Inc. (NYSE:STI) is scheduled to release results on Jan 19. It has an Earnings ESP of +0.81% and carries a Zacks Rank of 2.

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