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Why Is Schwab (SCHW) Down 6.7% Since the Last Earnings Report?

About a month has gone by since the last earnings report for The Charles Schwab Corporation SCHW. Shares have lost about 6.7% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to its next earnings release, or is SCHW due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Schwab Beats Q4 Earnings on Higher Interest Income

Schwab’s fourth-quarter 2017 adjusted earnings of 44 cents per share surpassed the Zacks Consensus Estimate of 41 cents. Results exclude one-time tax expense of 3 cents per share related to the tax act. Also, earnings increased 22% from the prior-year quarter.

Revenue growth (driven by a rise in interest income), absence of fee waivers and provisions were among the positives. Further, there was an impressive rise in total client assets and new brokerage accounts. However, higher expenses and a decrease in trading revenues remained the headwinds.

After considering tax act related charge, quarterly net income available to common shareholders was $550 million, up 14% year over year. For 2017, it was $2.18 billion, up from $1.75 billion in the prior year.

Revenue Improvement Offset by Expense Rise

Net revenues were $2.24 billion for the reported quarter, climbing 14% year over year, supported by asset management and administration fees (up 8%) and net interest revenues (up 26%) and other revenues (up 26%). These were partly offset by a 24% fall in trading revenues. The reported figure was in line with the Zacks Consensus Estimate.

For 2017, net revenues grew 15% from the prior year to $8.62 billion. The figure was on par with the Zacks Consensus Estimate.

Total non-interest expenses rose 12% year over year to $1.30 billion. All expense components increased on a year-over-year basis.

Provision for loan losses and fee waivers were nil.

Pre-tax profit margin improved to 42.5% from 41.8% recorded last year.

At the end of the fourth quarter, Schwab’s average interest-earning assets grew 8% year over year to $228.5 billion.

Annualized return on equity as of Dec 31, 2017, came in at 14%, on par with the year-ago level.

Other Business Developments

As of Dec 31, 2017, Schwab had total client assets of $3.36 trillion (up 21% year over year). Also, net new assets — brought by new and existing clients —surged 112% from the prior-year quarter to $78.1 billion.

In addition, Schwab added 386,000 new brokerage accounts in the reported quarter. As of Dec 31, 2017, the company had a total of 10.8 million active brokerage accounts, 1.2 million banking accounts and 1.6 million corporate retirement plan participants.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter compared to two lower. While looking back an additional 30 days, we can see even more upward momentum.

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The Charles Schwab Corporation Price and Consensus

 

The Charles Schwab Corporation Price and Consensus | The Charles Schwab Corporation Quote

VGM Scores

At this time, SCHW has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was also allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for growth and momentum investors.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise SCHW has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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