Charles Schwab Stock To Post Mixed Result In Q2

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Trefis
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Charles Schwab

Charles Schwab (NYSE: SCHW) is scheduled to report its fiscal Q2 2023 results on Tuesday, July 18, 2023. We expect it to post mixed results, with revenues beating the consensus estimates but earnings missing the mark. The company missed the revenues estimates in the last quarter, however managed to edge past the earnings expectations. It reported total revenues of $5.12 billion – up 10% y-o-y, mainly driven by growth in net interest income and asset management & administration fees. That said, the positive impact was partially offset by lower trading revenues and bank deposit account fees. We expect the trading revenues to continue on the same trend in Q2 due to lower client activity levels. Further, net interest income is likely to suffer because of slower loan growth.

Our forecast indicates that Charles Schwab’s valuation is $66 per share, which is 14% above the current market price of around $58. Our interactive dashboard analysis on Charles Schwab’s Earnings Preview has more details. 

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(1) Revenues to edge past the consensus estimates

Charles Schwab’s revenues grew 12% y-o-y to $20.76 billion in FY2022. It was because of a 33% increase in the net interest income, partially offset by a 12% decline in trading revenues. Further, the same momentum continued in Q1.

  • The NII contributes more than half of the total revenues. It rose by 27% in Q1, primarily due to an improvement in the net interest margin. However, we expect the numbers to suffer in Q2 due to slower loan growth.
  • The trading revenues were reduced by 7% in Q1 due to lower client activity levels. We expect the same trend to follow in Q2.
  • Overall, we forecast Charles Schwab’s revenues to remain around $19.59 billion for FY2023.

Trefis estimates Charles Schwab’s fiscal Q2 2023 net revenues to be around $4.65 billion, slightly above the $4.62 billion consensus estimate. 

(2) EPS is likely to miss the consensus estimates

Charles Schwab Q2 2023 adjusted earnings per share (EPS) is expected to be $0.70 per Trefis analysis, 3% below the consensus estimate of $0.72. The company’s adjusted net income increased 24% y-o-y to $6.64 billion in FY 2022. It was partly due to higher revenues and partly because of lower expenses as a % of revenues. The same trend continued in Q1 2023, with adjusted net income increasing by 20% y-o-y to $1.53 billion. That said, we expect the expense figure to slightly increase in Q2. Overall, Charles Schwab is likely to report an annual GAAP EPS of $3.36 for FY 2023. 

(3) Stock price estimate is 14% above the current market price

We arrive at Charles Schwab’s valuation, using an EPS estimate of around $3.36 and a P/E multiple of just below 20x in fiscal 2023. This translates into a price of $66, which is 14% higher than the current market price. 

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

What if you’re looking for a portfolio that aims for long-term growth? Here’s a value portfolio that’s done much better than the market since 2016.

 Returns Jul 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 SCHW Return 3% -30% 48%
 S&P 500 Return 0% 16% 100%
 Trefis Multi-Strategy Portfolio 4% 24% 298%

[1] Month-to-date and year-to-date as of 7/13/2023
[2] Cumulative total returns since the end of 2016

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