Normalized trading at Hurt Schwab (SCHW) in third quarter results

Charles Schwab SCHW is expected to release its third quarter 2021 results on October 15, before the market opens. Its revenues and profits for the quarter are expected to have improved year over year.

In the second quarter of 2021, Schwab’s earnings exceeded Zacks’ consensus estimate. Results reflected strong client asset balances and an increase in new brokerage accounts, which were driven by strong client activity.

The company has an impressive history of profit surprises. Its profits have beaten Zacks’ consensus estimate in each of the past four quarters, averaging 4.5%.

The Charles Schwab Corporation Prize and the EPS surprise

The Charles Schwab Corporation Prize and the EPS surprise

The Charles Schwab Corporation price-eps-surprise | The quote from Charles Schwab Corporation

Schwab’s activities in the reportable quarter have prompted analysts to revise earnings estimates upwards. Over the past 30 days, Zacks’ consensus estimate for its third quarter earnings has been revised 1.3% to 80 cents. The estimate indicates an increase of 56.9% over the number reported in the quarter of the previous year.

The consensus estimate for third-quarter sales is set at $ 4.52 billion, which suggests an 84.5% increase from the figure released a year ago.

Now, before we look at what our quantitative model predicts, let’s check out the factors that may have impacted Schwab’s performance in Q3.

Key factors at play

Unlike 2020 and the first months of 2021, the third quarter did not experience significant market volatility. While investors were interested in entering the markets, Schwab did not see a growth in new brokerage accounts.

In July, the company opened 402,000 new brokerage accounts, down 19% from levels in the previous month. In August, the new brokerage accounts were unchanged at 402,000.

Due to market normalization and relatively low volatility, Schwab’s trading revenues are expected to have been affected in the quarter under review.

Zacks’ consensus estimate for third quarter trading revenue is set at $ 850 million, which suggests an 11% drop from the number reported in the previous quarter.

The consensus estimate of total customer assets for the third quarter is set at $ 7.8 trillion, indicating sequential growth of 2.7%. In addition, the consensus estimate of average interest earning assets of $ 555 billion suggests growth of 3.5% from levels in the previous quarter.

Despite the continued low interest rate environment, Schwab’s net interest income is likely to have been positively impacted by the expected growth in interest-bearing assets. The steepening of the yield curve should have provided additional support. Zacks’ consensus estimate for net interest income is set at $ 2.1 billion, which suggests a 9% increase sequentially.

The consensus estimate for asset management and administration fees of $ 1.1 billion also suggests growth of 4.7%, sequentially.

Schwab’s operating expenses have been high in recent quarters. Due to persistent regulatory spending and strategic buyouts aimed at increasing efficiency, overall spending is expected to have been high in the reporting quarter.

What the Zacks model reveals

According to our quantitative model, the chances of Schwab beating Zacks’ consensus estimate this time are low. That’s because he doesn’t have the right combination of the two key ingredients – a positive earnings ESP and a Zacks Rank # 3 (Hold) or better.

You can discover the best stocks to buy or sell before they are flagged with our ESP Earnings Filter.

ESP on earnings: The PSE of earnings for Schwab is -0.17%.

Zack Rank: The company currently has a Zacks Rank # 2 (Buy).

Actions worth seeing

Here are a few financial stocks that you might want to consider as they have the right mix of elements to show a profit beat in their next releases, according to our model.

Fifth Third Bancorp FITB is expected to release its quarterly results on October 19. The company, which currently holds a Zacks rank of 2, has an ESP on earnings of + 0.46%.

Bank United, Inc. BKU is expected to release its quarterly results on October 21. The company currently has an ESP on earnings of +1.90% and has a Zacks rank of 3. You can see The full list of Zacks # 1 Rank (Strong Buy) stocks today here.

Capital One Financial Corporation COF is expected to release its quarterly results on October 26. The company, which currently holds a Zacks No.2 rank, has an ESP on earnings of + 8.43%.

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