It has been about a month since the last earnings report for The Charles Schwab Corporation (SCHW). Shares have added about 14.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is The Charles Schwab Corporation due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Schwab Q3 Earnings Top Estimates, Revenues Jump Y/Y
Schwab’s third-quarter 2022 adjusted earnings of $1.10 per share handily beat the Zacks Consensus Estimate of $1.05. The bottom line soared 31% from the prior-year quarter.
Results benefited from higher rates, which led to a rise in net interest income (NII). Thus, revenues witnessed an improvement despite higher volatility hurting trading income. Also, the absence of fee waivers and solid brokerage account numbers acted as tailwinds during the quarter. However, higher expenses were a headwind.
Results excluded acquisition and integration-related costs and amortization of acquired intangibles. After considering these, net income available to common shareholders (GAAP basis) was $1.88 billion or 99 cents per share, up from $1.41 billion or 74 cents per share in the year-ago quarter.
Revenues & Expenses Rise
Net revenues were $5.5 billion, which grew 20% year over year. The increase was mainly driven by a 44% surge in NII and a 28% rise in bank deposit fees. The top line also surpassed the Zacks Consensus Estimate of $5.40 billion.
Total non-interest expenses (GAAP basis) increased 10% to $2.82 billion. Excluding non-recurring items, expenses were $2.57 billion, up 12%.
The company recorded no fee waivers in the quarter compared with $83 million in the prior-year quarter.
Pre-tax profit margin increased to 48.7% from 44% in the prior-year quarter.
At the end of the third quarter, Schwab’s average interest-earning assets increased 6% year over year to $586.7 billion.
Annualized return on equity, as of Sep 30, 2022, was 25%, up from 12% in the prior-year quarter number.
Other Business Metrics
As of Sep 30, 2022, Schwab had total client assets of $6.64 trillion (down 13% year over year). During the reported quarter, net new assets — brought by new and existing clients — were $114.6 billion.
Schwab added 0.9 million new brokerage accounts during the quarter. As of Sep 30, 2022, the company had 33.9 million active brokerage accounts, 1.7 million banking accounts and 2.3 million corporate retirement plan participants.
Share Repurchase Update
During the reported quarter, Schwab repurchased 21.9 million shares for $1.5 billion.
Outlook
Assuming the market’s forward rate expectations as of early-October, the company expects full-year revenue growth of 11.
In the fourth quarter of 2022, NIM could reach in the mid-210 bps zone.
Under the current forward curve, NIM is expected to be above 2.50% by the end of 2023, with further expansion beyond 3% during the back half of 2025.
NIR is expected to be $3 billion in the fourth quarter.
2022 adjusted total expenses are expected to range from 7.
Update on TDA Deal
The company expects to incur total acquisition and integration-related costs and capital expenditure of $2.4-$2.5 billion, a 10% increase from the previous guidance range.
Total synergies are estimated to be $4.3 to $4.8 billion. The company anticipates achieving $1.8-$2 billion in run-rate expense synergy within four years of the deal closure.
Further, strong volume growth and newly identified opportunities strengthen the company’s outlook for revenue synergies. The company remains on track to achieve its run-rate revenue synergy target of $2.5-$2.8 billion.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
Currently, The Charles Schwab Corporation has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. 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. Notably, The Charles Schwab Corporation has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
The Charles Schwab Corporation is part of the Zacks Financial - Investment Bank industry. Over the past month, Morgan Stanley (MS), a stock from the same industry, has gained 13.9%. The company reported its results for the quarter ended September 2022 more than a month ago.
Morgan Stanley reported revenues of $12.99 billion in the last reported quarter, representing a year-over-year change of -12%. EPS of $1.53 for the same period compares with $2.04 a year ago.
For the current quarter, Morgan Stanley is expected to post earnings of $1.44 per share, indicating a change of -30.8% from the year-ago quarter. The Zacks Consensus Estimate has changed -7% over the last 30 days.
Morgan Stanley has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
