Charles Schwab (NYSE: SCHW) is scheduled to report its fiscal Q3 2023 results on Monday, October 16, 2023. We expect the company to top the consensus estimates of revenues and earnings. The company posted better-than-expected results in the last quarter, despite a 9% y-o-y decrease in the net revenues to $4.66 billion. The top line mainly suffered due to lower net interest income, followed by a drop in bank deposit account fees and trading income. That said, asset management and administration fees grew 12% in the quarter. We expect the same trend to continue in the third quarter. Our interactive dashboard analysis on Charles Schwab’s Earnings Preview has more details.
Our forecast indicates that Charles Schwab’s valuation is $73 per share, which is 41% above the current market price of around $52. Interestingly, Charles Schwab stock had a Sharpe Ratio of 0.2 since early 2017, which is lower than 0.6 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.24 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
(1) Revenues to edge past the consensus
Charles Schwab’s revenues were $9.77 billion in the first two quarters of 2023 – at the same level as the year-ago figure.
- The net interest income (NII) contributes close to 60% of the total revenues. It grew 7% y-o-y in the first half, despite a 10% drop in Q2. However, we expect the NII to see a year-on-year drop in Q3.
- The asset management and administration fees improved by 8% in the first half of 2023. We expect the same momentum to continue in the third quarter.
- The trading revenues suffered in the first two quarters of 2023 and are likely to follow the same trend in Q3.
- Overall, we forecast Charles Schwab’s revenues to touch $19.3 billion for FY2023.
Trefis estimates Charles Schwab’s fiscal Q3 2023 net revenues to be around $4.71 billion, slightly above the $4.67 billion consensus estimate.
(2) EPS is likely to beat the expectations
Charles Schwab Q3 2023 adjusted earnings per share (EPS) is expected to be $0.78 per Trefis analysis, almost 3% above the consensus estimate of $0.76. The company’s adjusted net income decreased 8% y-o-y to $2.6 billion in the first half of 2023, primarily due to higher noninterest expenses. Notably, the adjusted net income was down 29% y-o-y in Q2. We expect the Q3 results to be on similar lines. Overall, Charles Schwab is likely to report an annual GAAP EPS of $3.22 for FY 2023.
(3) The stock price estimate is 41% above the current market price
We arrive at Charles Schwab’s valuation, using an EPS estimate of around $3.22 and a P/E multiple of just below 23x in fiscal 2023. This translates into a price of $73, which is 41% more 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
|S&P 500 Return||2%||14%||95%|
|Trefis Reinforced Value Portfolio||0%||24%||535%|
 Month-to-date and year-to-date as of 10/11/2023
 Cumulative total returns since the end of 2016