Charles Schwab Corporation (SCHW), a leading provider of securities brokerage and financial services, announced its first-quarter 2012 results on April 16. The results were in line with the Zacks Consensus Estimate.
The covering analysts had more than a week time to ponder the results. In the subsequent paragraphs, we will cover the recent earnings announcement, resultant analysts’ estimate revisions along with the Zacks Rank and our long-term recommendation on the stock.
Earnings Report Review
Charles Schwab’s first quarter 2012 earnings came in at 15 cents per share, in line with the Zacks Consensus Estimate. However, this compared unfavorably with the year-ago quarter’s earnings of 20 cents.
Now, turning to Charles Schwab’s net revenue figures, they were down marginally 1% from the prior-year quarter to $1,189 million. Lower net interest revenue as well as asset management and administration fees were the primary reasons for the marginal slide. However, net revenue outpaced the Zacks Consensus Estimate of $1,171 million.
(Read our full coverage on this earnings report: Schwab Reports In Line, Revs Down)
Earnings Estimate Revisions – Overview
Since the earnings release, the Zacks Consensus Estimate for the second quarter and full year 2012 is marginally up as the analysts are slightly bullish about Charles Schwab’s future growth prospects. We will now discuss the details of earnings estimate revisions to substantiate why short-term investors should add this stock to their investment kitty.
Agreement of Estimate Revisions
Over the last 7 days, the estimate revision trend for the second quarter of 2012 portrays a slightly bearish sentiment among the analysts covering Charles Schwab. Out of the 15 analysts, 5 lowered their estimates for the second quarter, while 4 of them raised theirs. However, over the last 30 days, the sentiments have been extremely positive, with 8 upward and 3 downward revisions.
Similarly for 2012, though estimate revision trends over the last 7 days showed a slightly negative sentiment among the analysts covering the stock, it has been chiefly positive over the last 30 days. Over the last 7 days, 6 out of 16 analysts cut their estimates for 2012, while 5 upped their estimates. However, over the last 30 days, there were 10 upward revisions while only 3 moved in the opposite direction.
Further for 2013, estimate revision trends show a bullish sentiment among the analysts, both for the last 7 and 30 days. Over the last 7 days, 4 out of 16 analysts hiked their estimates for 2013, while there was only 1 downward revision. Likewise, over the last 30 days, 7 analysts increased their estimates while 1 lowered.
Magnitude of Estimate Revisions
Despite the slightly negative sentiment of the analysts over the last 7 days, the Zacks Consensus Estimate for second-quarter of 2012 has remained stable at 18 cents per share. Over the last 30 days, it moved up by a penny.
For 2012, over the last 7 days, the Zacks Consensus is down by 1 cent, while it surged 3 cents over the last 30 days to 71 cents. However, the estimates remain unchanged for 2013 over the last 7 days, while it spiked up by a penny over the last 30 days to 86 cents per share.
Our Viewpoint
While a focus on low-cost capital structure will help sustain better results in the upcoming quarters, Charles Schwab’s financials will continue to be impacted by lower trading activity and volatile interest rates. We are also concerned about the company’s lower degree of capital intensity relative to its peers.
However, the recent acquisitions are expected to boost Charles Schwab’s top line to some extent, leading to an overall growth. Moreover, the company’s efforts to become less depended on interest rates through the launch of new products and initiatives will definitely enable the company to enhance its growth in institutional and retail businesses going forward.
Schwab currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. Similarly, one of its peers Jefferies Group Inc. (JEF) retains a Zacks #2 Rank.
Further, based on the fundamentals, we maintain our long term “Outperform” recommendation on Charles Schwab.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/
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