Charles Schwab (NYSE: SCHW) is scheduled to report its fiscal Q2 2022 results on Monday, July 18, 2022. We expect it to edge past the consensus estimates for revenues and earnings. The company missed the street expectations in the last quarter, with net revenues marginally decreasing to $4.7 billion. While the trading revenues decreased 21% y-o-y, the effect was almost offset by a 14% increase in the net interest income (NII) and a 5% rise in the asset management and administration fees. We expect each of the three revenue streams to grow in the second quarter.
Our forecast indicates that Charles Schwab’s valuation is $92 per share, which is 49% above the current market price of around $62. Our interactive dashboard analysis on Charles Schwab’s Earnings Preview has more details.
(1) Revenues expected to top the consensus estimates
Charles Schwab’s revenues grew 58% to $18.5 billion in 2021. It was partly due to the acquisition of TD Ameritrade and partly driven by organic growth. Notably, it posted growth in all the revenue streams – NII, asset management & administration fees, trading revenues, and bank deposit account fees.
- The NII contributed $8 billion (up 31% y-o-y) in 2021, which was close to 43% of the net revenues. Further, the same trend continued in the first quarter of 2022, with NII increasing by 14%. It was because of growth in interest-earning assets and higher average yields on investment securities. We expect it to follow the same pattern in Q2.
- The trading revenues suffered in the first quarter of 2022 due to lower client activity levels. However, client activity levels have improved over recent months and we expect the segment to see some growth in Q2.
- The asset management and administration fees primarily include income earned on client assets invested in money market funds, other mutual funds, and specific investment programs. It increased in 2021 due to higher Assets under Management (AuM). Further, the same trend was observed in the first quarter of 2022, and we expect it to continue in the second quarter.
- Overall, we estimate Charles Schwab’s revenues to touch $21 billion for FY2022.
Trefis estimates Charles Schwab’s fiscal Q2 2022 net revenues to be around $5.13 billion, 2% above the $5.05 billion consensus estimate.
2) EPS is likely to marginally beat the consensus estimates
Charles Schwab Q2 2022 adjusted earnings per share (EPS) is expected to be $0.95 per Trefis analysis, almost 3% above the consensus estimate of $0.92. The company reported a 76% y-o-y jump in the adjusted net income to $5.36 billion in 2021. It was due to growth in the top-line and lower expenses as a % of revenues. We expect the same trend to drive the second-quarter results. Overall, Charles Schwab is likely to report an annual EPS of $3.80 for FY 2022.
(3) Stock price estimate 49% above the current market price
We arrive at Charles Schwab’s valuation, using an EPS estimate of around $3.80 and a P/E multiple of just above 24x in fiscal 2022. This translates into a price of $92, which is 49% more than the current market price of close to $63.
With inflation rising and the Fed raising interest rates, Charles Schwab has fallen 27% this year. Can it drop more? See how low can Charles Schwab stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
|S&P 500 Return||1%||-20%||71%|
|Trefis Multi-Strategy Portfolio||2%||-21%||210%|
 Month-to-date and year-to-date as of 7/14/2022
 Cumulative total returns since the end of 2016
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