Charles Schwab (NYSE: SCHW) is scheduled to report its fiscal Q3 2022 results on Monday, October 17, 2022. We expect the company to post mixed results, with revenues topping the consensus estimates but earnings missing the mark by a slight margin. The company surpassed the street expectations in the last quarter, with net revenues increasing 13% y-o-y to $5.1 billion. It was driven by a 31% jump in the net interest income, which benefited from higher interest rates and interest-earnings assets. That said, the trading revenues were down 7% in the quarter. Further, total client assets at the end of June 2022 were $6.8 trillion – down 10% y-o-y. We expect the same trend to continue in the third quarter.
Our forecast indicates that Charles Schwab’s valuation is $91 per share, which is 27% above the current market price of around $72. Our interactive dashboard analysis on Charles Schwab’s Earnings Preview has more details.
(1) Revenues expected to edge past the consensus estimates
Charles Schwab’s revenues increased 6% y-o-y to $9.77 billion in the first half of 2022. It was because of a 23% jump in the net interest income (NII), followed by a 3% rise in the asset management and administration fees.
- The NII contributed $8 billion in 2021, which was close to 43% of the net revenues. Further, the contribution percentage increased to 48% in the first two quarters of 2022, due to higher interest earnings assets and recovery in the interest rates. We expect it to follow the same pattern in Q3.
- The trading revenues suffered in the first two quarters of 2022 due to lower client activity levels. We expect the segment to see some growth in Q3.
- The asset management and administration fees were up just 3% y-o-y in the first two quarters of 2022, due to lower total client assets. The drop in client assets neutralized the positive effect of higher fees as a % of assets to a large extent. We expect the third-quarter results to be on similar lines.
- Overall, we estimate Charles Schwab’s revenues to touch $20.9 billion for FY2022.
Trefis estimates Charles Schwab’s fiscal Q3 2022 net revenues to be around $5.45 billion, slightly above the $5.41 billion consensus estimate and 19% above the year-ago figure.
(2) EPS is likely to miss the consensus estimates
Charles Schwab Q3 2022 adjusted earnings per share (EPS) is expected to be $1.03 per Trefis analysis, marginally below the consensus estimate of $1.05. The company reported a 17% y-o-y rise in the adjusted net income to $2.93 billion in the first half of 2022. It was due to growth in the top line and lower expenses as a % of revenues. We expect the same trend to drive the third-quarter results. Overall, Charles Schwab is likely to report an annual EPS of $3.85 for FY 2022.
(3) Stock price estimate is 27% above the current market price
We arrive at Charles Schwab’s valuation, using an EPS estimate of around $3.85 and a P/E multiple of just below 24x in fiscal 2022. This translates into a price of $91, which is 27% higher than the current market price of close to $72.
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
With inflation rising and the Fed raising interest rates, Charles Schwab has fallen 15% 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||0%||-25%||60%|
|Trefis Multi-Strategy Portfolio||0%||-26%||192%|
 Month-to-date and year-to-date as of 10/12/2022
 Cumulative total returns since the end of 2016
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