What To Expect From Charles Schwab Stock In Q1?

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Charles Schwab

Charles Schwab (NYSE: SCHW) is scheduled to report its fiscal Q1 2022 results on Monday, April 18, 2022. We expect it to beat the consensus estimates for revenues and earnings. The company underperformed the street expectations in the fourth quarter. Its net revenues increased 13% y-o-y to $4.71 billion driven by a growth in the net interest income (NII), a rise in trading revenues, and an improvement in the asset management and administration fees. While the interest income was up due to higher interest-earning assets, trading revenues benefited from growth in brokerage accounts, higher trading volumes, and an increase in revenue per trade. Similarly, growth in the asset management & administration fees was because of higher Assets under Management (AuM). We expect the same trend to continue in the first quarter of 2022.

Our forecast indicates that Charles Schwab’s valuation is $100 per share, which is 25% above the current market price of around $80. Our interactive dashboard analysis on Charles Schwab’s Earnings Preview has more details. 

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(1) Revenues expected to beat the consensus estimates

Charles Schwab’s revenues for full-year 2021 were $18.5 billion, 58% more than the year-ago figure. Notably, the growth was in part driven by the acquisition of TD Ameritrade in the fourth quarter of 2020, and in part due to the organic growth in 2021. It resulted in a 31% rise in NII, a 23% increase in asset management & administration fees, and around a 2x jump in the trading revenues. Further, total client assets improved 22% y-o-y to around $8.1 trillion in the year.

  • The firm derived close to 43% of the net revenues from NII in 2021. Its interest-earning assets increased 46% y-o-y to $547.9 billion, partially offset by a lower net interest margin. We expect the same momentum to continue in Q1. 
  • The trading revenues mainly depend on active brokerage accounts, clients’ daily average trades, and revenue per trade. The company witnessed significant growth in all the three drivers in 2021– active brokerage accounts (up 12% y-o-y), clients’ daily average trades (up 150%), and revenue per trade (up 18%). We expect the same trend to continue in the first quarter.
  • The asset management and administration fees primarily include income earned on client assets invested in money market funds, other mutual funds, and certain investment programs. It increased 23% in 2021, mainly led by a 40% jump in the Assets under Management (AuM) to $2.8 trillion. We expect the first-quarter results to be on similar lines.
  • Overall, Trefis estimates Charles Schwab’s fiscal Q1 2022 net revenues to be around $5.03 billion, 4% above the $4.83 billion consensus estimate. Further, Charles Schwab’s revenues are likely to touch $20.9 billion for the full-year FY2022.

The expected increase in interest rates will likely benefit the NII. Further, the growth in Assets under Management (AuM) will boost the asset management revenues. On the flip side, daily average trading volumes are anticipated to normalize over the subsequent quarters, negatively impacting the trading income. Our dashboard on Charles Schwab’s revenues offers more details on the company’s operating segments along with our forecast for FY2022.

2) EPS is likely to beat the consensus estimates

Charles Schwab Q1 2022 adjusted earnings per share (EPS) is expected to be $0.93 per Trefis analysis, almost 10% above the consensus estimate of $0.85. The company reported a 76% y-o-y jump in the adjusted net income to $5.36 billion in 2021. It was partly due to revenue growth and partly due to lower expenses as a % of revenues. We expect the same trend to drive the first-quarter results. Overall, Charles Schwab is likely to report an adjusted net income of $7 billion and annual EPS of $3.73 for full-year 2022. 

(3) Stock price estimate 25% above the current market price

We arrive at Charles Schwab’s valuation, using an EPS estimate of around $3.73 and a P/E multiple of just below 27x in fiscal 2021. This translates into a price of $100, which is 25% more than the current market price of close to $80. 

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year 

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 Returns Apr 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 SCHW Return -5% -5% 103%
 S&P 500 Return -3% -8% 96%
 Trefis Multi-Strategy Portfolio -2% -9% 257%

[1] Month-to-date and year-to-date as of 4/13/2022
[2] Cumulative total returns since the end of 2016

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