What To Expect From Charles Schwab Stock In Q4?

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Charles Schwab

Charles Schwab (NYSE: SCHW) is scheduled to report its fiscal Q4 2022 results on Wednesday, January 18, 2023. We expect it to post mixed results, with earnings topping the consensus estimates but revenues missing the mark by a small margin. The company outpaced the street expectations in the last quarter, with net revenues increasing 20% y-o-y to $5.5 billion. It was primarily driven by a 44% jump in the net interest income (NII) and a 28% rise in bank deposit account fees. That said, the growth was somewhat offset by lower asset management & administration fees and a drop in trading income. We expect the same trend to continue in the fourth quarter.

Our forecast indicates that Charles Schwab’s valuation is $92 per share, which is 11% above the current market price of around $83. Our interactive dashboard analysis on Charles Schwab’s Earnings Preview has more details. 

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(1) Revenues to marginally miss the consensus estimates

Charles Schwab’s revenues grew 11% y-o-y to $15.3 billion in the first nine months of 2022. It was because of a 30% growth in the net interest income (NII) and a 5% rise in the bank deposit and account fees, partially offset by an 11% decline in trading income.

  • The NII contributes close to 60% of the total revenues, which decreased in 2020 and 2021 due to interest rate headwinds. However, the Fed started the rate hike process in 2022 and increased the benchmark interest rates seven times. This led to an improvement in the net interest income. We expect the growth momentum to continue in Q4. 
  • The trading revenues suffered in the first three quarters of 2022 due to lower client activity levels. We expect the same trend to follow in Q4.
  • Overall, we estimate Charles Schwab’s revenues to touch $20.8 billion for FY2022.

Trefis estimates Charles Schwab’s fiscal Q4 2022 net revenues to be around $5.54 billion, slightly below the $5.57 billion consensus estimate. 

(2) EPS is likely to edge past the consensus estimates

Charles Schwab Q4 2022 adjusted earnings per share (EPS) is expected to be $1.11 per Trefis analysis, almost 2% above the consensus estimate of $1.09. The company’s adjusted net income increased 23% y-o-y to $4.8 billion in the first nine months of 2022. It was partly due to higher revenues and partly because of lower expenses as a % of revenues. We expect the same trend to drive the fourth-quarter results. Overall, Charles Schwab is likely to report an annual GAAP EPS of $3.92 for FY 2022. 

(3) Stock price estimate is 11% above the current market price

We arrive at Charles Schwab’s valuation, using an EPS estimate of around $3.92 and a P/E multiple of just above 23x in fiscal 2022. This translates into a price of $92, which is 11% more than the current market price of close to $83. 

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 Jan 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 SCHW Return 0% 0% 110%
 S&P 500 Return 4% 4% 79%
 Trefis Multi-Strategy Portfolio 8% 8% 241%

[1] Month-to-date and year-to-date as of 1/16/2023
[2] Cumulative total returns since the end of 2016

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