We expect brokerage firm
) to beat expectations when it reports first-quarter 2014 results
tomorrow, Apr 15, before the opening bell.
Why a Likely Positive Surprise?
Our proven model shows that Schwab is likely to beat earnings
because it has the right combination of two key components.
Positive Zacks ESP:
Earnings ESP, which represents the difference between the Most
Accurate Estimate and the Zacks Consensus Estimate, stands at
+4.55%. This is very meaningful and a leading indicator of a
likely positive earnings surprise for the company.
Zacks #3 Rank (Neutral):
Note that stocks with Zacks Ranks of #1 (Strong Buy), 2 (Buy) and
3 (Hold) 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 +4.55% makes
us confident of an earnings beat on Apr 15.
What is Driving Better-Than-Expected Earnings?
Schwab has been making significant efforts to become less
dependent on interest rates. The company's consistent initiatives
to increase revenues are commendable as well.
Sluggish macroeconomic conditions will no doubt partly impact
Schwab's performance in the first quarter. However, if we observe
the company's monthly activity update since Jan 2014, we find a
year over-year-improvement in total client assets.
Growth in interest earning asset balance tends to ease the
negative impact of a low interest rate scenario. Therefore, there
are high chances that Schwab might continue to report improvement
in net interest income for the first quarter.
Schwab delivered positive earnings surprises in two out four
trailing quarters. Moreover, the company has an average earnings
beat of 2.0%.
Also, Schwab's activities during the quarter were adequate enough
to win analysts' confidence. Consequently, the Zacks Consensus
Estimate for the quarter increased 4.8% to 22 cents per share
over the last 7 days.
However, there is a possibility that the company might have
further waived its fee in order to attract more clients this
quarter. Additionally, regulatory spending and compensation
expenses will likely keep Schwab's expenses high.
Other Stocks to Consider
Schwab is not the only firm looking up this earnings season. We
also anticipate earnings beat from three other companies in this
Investment Technology Group Inc.
) has an earnings ESP of +6.45% and a Zacks Rank #1. It is
scheduled to report first-quarter results on May 1.
The earnings ESP
Interactive Brokers Group, Inc.
) is +13.79% and it has a Zacks Rank #2. The company is slated to
release first-quarter results on Apr 15.
Raymond James Financial, Inc.
) has an earnings ESP of +1.27% and a Zacks Rank #2. It is slated
to report fiscal second-quarter results on Apr 23.
INTERACTIVE BRK (IBKR): Free Stock Analysis
INVEST TECH-NEW (ITG): Free Stock Analysis
RAYMOND JAS FIN (RJF): Free Stock Analysis
SCHWAB(CHAS) (SCHW): Free Stock Analysis
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