What To Watch For In Charles Schwab’s Q1 Earnings

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Charles Schwab

Charles Schwab’s (NYSE:SCHW) performance in 2016 was strong, and we expect this trend to continue when the company reports its first quarter earnings on April 18th. We believe that interest-earning assets and assets under management will be the key drivers of growth. However, trading revenues will likely decline marginally as the company decided to slash its commissions. Since trading commissions generate only a small portion of the company’s overall revenue, we believe the price cut shouldn’t have a major impact on revenue and EPS growth in the near term.

Fed’s Rate Hike 

The Fed raised interest rates by 25-50 basis points twice in the last 4 months, in December 2016 and March 2017. As a result, Charles Schwab’s interest earning assets are growing at a very strong rate, and saw nearly  22% growth in January and February. Consequently, revenues from this segment, which contribute around 45% of the company’s overall revenues, are expected to go up significantly.

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Price Cut In Trading Commission And Comparatively Less Volatile Trading Period

Amid tough competition from competing full-service and discount brokerages, the company decided to slash its commissions to $4.95 per trade. Moreover, the trading volumes for the quarter were around 4% lower than that for Q1 2016. Last year saw fairly volatile periods of trading activity due to an economic slowdown and oil price rally.

See our complete analysis for Charles Schwab.

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