Will Lower Interest Rates Hurt Schwab (SCHW) in Q3 Earnings?

Charles Schwab SCHW is scheduled to report third-quarter 2019 results on Oct 15, before the market opens. Its revenues and earnings for the to-be-reported quarter are projected to grow year over year.

In the last reported quarter, the company’s earnings met the Zacks Consensus Estimate. Revenue growth and increase in total client assets aided results. However, higher expenses and lower trading revenues acted as headwinds.

Schwab has an impressive earnings surprise history as its earnings surpassed the Zacks Consensus Estimate in three and met in one of the trailing four quarters, the average positive surprise being 1.9%.

The Charles Schwab Corporation Price and EPS Surprise

The Charles Schwab Corporation Price and EPS Surprise

The Charles Schwab Corporation price-eps-surprise | The Charles Schwab Corporation Quote

However, activities of the company during the third quarter failed to encourage analysts to revise earnings estimates upward. Over the past 30 days, its Zacks Consensus Estimate for its earnings for the to-be-reported quarter has declined 1.5% to 66 cents. Nevertheless, the figure indicates an improvement of 1.5% from the year-ago reported number.

The Zacks Consensus Estimate for sales for the to-be-reported quarter is pegged at $2.65 billion, which suggests an increase of 2.8% from the year-ago reported figure.

Before we take a look at what our quantitative model predicts, let’s check the factors that are likely to have impacted Schwab’s third-quarter results.

Factors to Influence Q3 Results

During the third quarter, markets remained volatile and the performance of equity markets was good.

Schwab opened 129,000 and 126,000 new brokerage accounts in July and August, respectively, indicating that investors were somewhat interested in entering the market.

Thus, despite relatively lower client activity, the company’s trading revenues are expected to have gotten some support from steady market volatility witnessed in the to-be-reported quarter.

However, because of the decline in interest rates (two rate cuts, one in July and the other in September) and flattening of the yield curve, the company’s net interest revenues are likely to have been adversely impacted in the third quarter.

Notably, Schwab’s operating expenses have remained elevated in the past few quarters. Moreover, because of higher compensation and benefits costs, overall expenses are expected to have remained high in the third quarter.

Earnings Whispers

According to our quantitative model, chances of Schwab beating the Zacks Consensus Estimate in the third quarter are low. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — which is required to be confident of an earnings surprise call.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Schwab is -2.28%.

Zacks Rank: Schwab currently carries a Zacks Rank #5 (Strong Sell), which further decreases the chances of an earnings beat.

Stocks Worth a Look

Here are some finance stocks that you may want to consider as these have the right combination of elements to post an earnings beat this quarter, per our model.

Sallie Mae SLM has an Earnings ESP of +24.09% and sports a Zacks Rank #1 (Strong Buy) at present. The company is slated to release results on Oct 23.

Federated Investors, Inc FII is slated to release results on Oct 24. It currently has an Earnings ESP of +0.75% and a Zacks Rank #3.

Cigna Corporation CI is slated to release results on Oct 31. It presently has an Earnings ESP of +1.53% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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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.

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