The Charles Schwab Corporation (SCHW) is scheduled to report its fourth-quarter and full year 2014 earnings results on Jan 16, before the market opens.
Third-quarter 2014 earnings per share missed the Zacks Consensus Estimate. Results were impacted by higher operating expenses, partially offset by strong revenue growth and lower provision for loan losses.
Schwab recorded an earnings beat in two of the trailing last four quarters with an average positive surprise of 4.65%.
Is Schwab likely to miss on earnings this quarter? Let’s see how things have shaped up for this announcement.
Factors to Influence Q4 Results
Management anticipates higher trading revenues in this quarter, unlike the previous few quarters. However, asset management fees are expected to decline. Further, despite market volatility, Schwab expects revenue growth for 2014 to be in the double digits, up from the prior guidance of high single digits.
The company has been making significant efforts to lower its dependence on businesses that are sensitive to the interest rate. Notably, the company anticipates net interest margin to be around 1.60% in this quarter in spite of the prevalent interest rate volatility.
Management does not foresee any reduction in compensation expense and real estate expense before 2016, indicating that expenses should remain at elevated level in the upcoming release. Moreover, the company expects pre-tax profit margin of at least 34% for 2014.
Driven by the persistent unfavorable macroeconomic environment, Schwab has been experiencing fee waivers of the money market management fee over the past few years. No respite seems evident as management expects money fund fees to decline in the quarter, triggered by the persistently low interest rates.
Schwab’s activities during the quarter failed to win analysts’ confidence. Consequently, the Zacks Consensus Estimate for the quarter remained stable at 24 cents per share over the last seven days.
Earnings Whispers
Our proven model does not conclusively show that Schwab is likely to beat the Zacks Consensus Estimate in the fourth quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The Earnings ESP for Schwab is 0.00%. This is because the Most Accurate estimate of 24 cents per share is at par with the Zacks Consensus Estimate.
Zacks Rank: Schwab’s Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise call.
Stocks That Warrant a Look
Here are a few 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 Federated Investors, Inc. (FII) is +2.63% and it has a Zacks Rank #2. The company is slated to release results on Jan 22.
Ameriprise Financial, Inc. (AMP) has an Earnings ESP of +0.45% and a Zacks Rank #2. It is scheduled to report results on Jan 28.
Aon plc (AON) has an Earnings ESP of +1.08% and a Zacks Rank #3. It is slated to report results on Jan 30.
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