Weak Business Performance for Hurt Schwab (SCHW) Second Quarter Results – July 14, 2021
Charles Schwab (SCHW – Free Report) is expected to release second quarter 2021 results on July 16, before the market opens. Its revenues and profits in the quarter under review are expected to have improved year over year.
In the first quarter of 2021, Schwab’s earnings exceeded Zacks’ consensus estimate. The results reflect strong client asset balances and an increase in new brokerage accounts, which were driven by strong client activity in volatile markets induced by the pandemic.
The company has an impressive history of profit surprises. Its profits topped Zacks’ consensus estimate in three and lagged in one of the last four quarters, averaging 3.7%.
Schwab’s activities in the reportable quarter have not encouraged analysts to revise earnings estimates upwards. So over the past seven days, Zacks’ consensus estimate for second quarter earnings has been revised down 2.7% to 73 cents. However, the estimate shows a 35.2% increase from the number reported a year ago.
The consensus estimate for second-quarter sales is set at $ 4.48 billion, which suggests an 83% increase from the figure released a year ago.
Now, before we look at what our quantitative model predicts, let’s check out the factors that may have impacted Schwab’s performance in Q2.
Key factors at play
Unlike the previous five quarters, the second quarter did not experience significant market volatility. Additionally, while overall client activity has been decent, Schwab saw a decline in new brokerage accounts in April and May, which should have had an impact on trading performance for the quarter to be released.
In April, Schwab opened 609,000 new brokerage accounts, down 28% from the previous month. In May, she opened 549,000 accounts, down 10% from the previous month.
So while investors were somewhat interested in entering the markets in the second quarter, Schwab’s trading income is not expected to have improved significantly due to reduced volatility and market normalization.
Zacks’ consensus estimate for second quarter trading revenue is set at $ 900 million, which suggests a 26% drop from the number reported in the previous quarter.
Now, the consensus estimate of total customer assets of $ 7.3 trillion indicates sequential growth of 3.7%. In addition, the consensus estimate of average interest earning assets of $ 528 billion suggests growth of 1.9% from the previous quarter.
Thus, despite the still low interest rate environment, Schwab’s net interest income is likely to have been positively impacted by the expected growth in interest-bearing assets. Zacks’ consensus estimate for net interest income is set at $ 2 billion, which suggests a 5.1% increase, sequentially.
The consensus estimate for asset management and administration fees of $ 1.1 billion also suggests growth of 6%, sequentially.
On the expense side, Schwab’s operating expenses have been high in recent quarters. In fact, due to ongoing regulatory spending as well as strategic buyouts to improve efficiency, overall spending is expected to have been high in the quarter to be released.
Notably, Schwab mentioned that he was facing a Securities and Exchange Commission investigation into the digital advisory platform – Schwab Intelligent Portfolios. Due to the robo-advisor’s investigation, he will likely incur a “non-deductible charge of $ 200 million” in the second quarter of 2021.
What the Zacks model reveals
According to our quantitative model, the chances of Schwab beating Zacks’ consensus estimate this time are low. That’s because he doesn’t have the right combination of the two key ingredients – a positive earnings ESP and a Zacks Rank # 3 (Hold) or better.
You can discover the best stocks to buy or sell before they are flagged with our ESP Earnings Filter.
ESP on earnings: The PSE of earnings for Schwab is -5.75%.
Zack Rank: The company currently holds a Zacks Rank # 3.
Actions worth seeing
Here are a few financial stocks that you might want to consider as they have the right mix of elements to show a profit beat in their next releases, according to our model.
The Bank of New York Mellon (BK – Free report) is expected to release its quarterly results on July 15. The company currently has an ESP on Profits of +1.84 and a Zacks Rank of 3. You can see The full list of Zacks # 1 Rank (Strong Buy) stocks today here.
US Bancorp (Usb – Free Report) is expected to announce its quarterly results on July 15. The company has an ESP profit of + 0.49% and has a Zacks rank of 3.
Bank United, Inc. (BKU – Free Report) is expected to release its profit figures on July 22. The company, which currently holds a Zacks rank of 3, has an ESP on earnings of + 3.07%.