The Charles Schwab Corporation SCHW is slated to report third-quarter 2015 results, before the market opens on Oct 15.
This San Francisco-based investment broker delivered positive earnings surprise of 4.2% in second quarter of 2015. A rise in revenues and lower provision for loan losses was somewhat offset by mounting expenses.
Will Schwab be able to beat on earnings this quarter as well? Let us see what our model indicates:
Our proven model shows that Schwab has the right combination of two key ingredients to beat earnings this time too.
Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +3.85%. This is a very meaningful and leading indicator of a likely positive earnings surprise for the company.
Zacks Rank: Schwab carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) and 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement.
The combination of Schwab’s Zacks Rank #3 and ESP of +3.85% makes us confident of an earnings beat.
Factors to Consider
Unprecedented equity market turmoil during the quarter is expected to drive Schwab’s daily trading volumes. Also, the company opened 87,000 new brokerage accounts for both July and August (based on monthly reports released by the company), which indicates that investors were interested in entering the market. Hence, trading revenue is likely to trend upward in the quarter.
Further, Schwab has witnessed an increase in average interest earning client assets in July and August. This should drive asset management fees as well as net interest revenue during the quarter.
However, with the Federal Reserve’s “no rate hike” decision, Schwab’s overall top-line growth will continue to face adverse impact from a potential increase in fee waivers. Though the company is undertaking initiatives to reduce its sensitivity to interest rate, a prevailing low rate environment should continue to hurt top-line performance.
Further, operating expenses should mount year over year as Schwab continues to incur costs related to compensation and regulatory spending. As per management, overall expense is anticipated to grow at 4% for 2015, including the third quarter.
Schwab’s activities during the quarter were insufficient to win analysts’ confidence. As a result, the Zacks Consensus Estimate fell 3.7% to 26 cents per share in the past 7 days.
Stocks That Warrant a Look
Here are some other finance stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
The Earnings ESP for SunTrust Banks, Inc. STI is +1.21% and it carries a Zacks Rank #3. The company is slated to release results on Oct 16.
The Bank of New York Mellon Corporation BK has an Earnings ESP of +1.39% and a Zacks Rank #3. The company will announce results on Oct 20.
Capital One Financial Corporation COF has an Earnings ESP of +3.14% and a Zacks Rank #3. It is scheduled to report on Oct 22.
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