Schwab (SCHW) up as third-quarter earnings estimates top, revenue jumps

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Charles SchwabSCHW’s third-quarter 2022 adjusted earnings of $1.10 per share significantly beat Zacks’ consensus estimate of $1.05. Net income also climbed 31% from the prior year quarter. Our estimate of adjusted earnings was $1.02 per share.

The stock jumped 3.4% in premarket trading, reflecting bullish investor sentiment over its better-than-expected quarterly performance. The full day trading session will show a clearer picture.

Earnings benefited from higher rates, which led to higher net interest income (NII). As such, revenue saw improvement despite higher volatility which hurt trading revenue. Additionally, the absence of fee waivers and strong brokerage account numbers were tailwinds during the quarter. However, higher spending was a headwind.

The results exclude the costs related to the acquisition and the integration and amortization of the intangible assets acquired. After taking these items into account, net income available to common shareholders (GAAP basis) was $1.88 billion or 99 cents per share, compared to $1.41 billion or 74 cents per share in the quarter. ‘last year. We had projected earnings per share (GAAP basis) of 91 cents.

Increase in income and expenses

Net revenue was $5.5 billion, up 20% year over year. The increase was mainly due to a 44% increase in NII and a 28% increase in bank deposit fees. Revenue also exceeded Zacks’ consensus estimate of $5.40 billion. Our estimate for the metric was $5.38 billion.

Total non-interest expense (GAAP) increased 10% to $2.82 billion. We projected that measure to be $2.97 billion. Excluding one-time items, expenses were $2.57 billion, up 12%.

The company recorded no fee waivers in the quarter, compared to $83 million in the year-ago quarter.

Pretax profit margin increased to 48.7% from 44% in the prior year quarter. Our estimate for the metric was 44.7%.

At the end of the third quarter, Schwab’s average interest-earning assets increased 6% year over year to $586.7 billion.

The annualized return on equity, as of September 30, 2022, was 25%, compared to 12% in the prior year quarter.

Other trade measures

As of September 30, 2022, Schwab had total client assets of $6.64 trillion (down 13% year over year). In the quarter under review, net new assets – contributed by new and existing customers – amounted to $114.6 billion. Our estimate of net new assets was $125.5 billion.

Schwab added 0.9 million new brokerage accounts during the quarter. As of September 30, 2022, the company had 33.9 million active brokerage accounts, 1.7 million bank accounts and 2.3 million company pension plan participants.

Share buyback update

During the quarter under review, Schwab repurchased 21.9 million shares for $1.5 billion. In July, the company announced a $15 billion share buyback authorization.

Our opinion

Schwab’s inorganic expansion efforts should strengthen its position as a major brokerage player. In addition, rising interest rates are supporting revenue growth. However, increased spending remains a concern.

The Charles Schwab Corporation Award, Consensus, and EPS Surprise

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

Currently, Schwab carries a Zacks Rank #3 (Hold). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dates of publication of the results of other investment dealers

Raymond James RJF is expected to announce quarterly numbers on October 25.

Over the past 30 days, the Zacks consensus estimate for Raymond James’ quarterly earnings has been revised down 1.5% to $2.03, suggesting a decline of 1.5% from to the previous year’s figure.

LPL Financial LPLA is expected to announce second quarter 2022 figures on October 27.

Over the past 30 days, the Zacks consensus estimate for LPL Financial’s quarterly earnings has moved 2.5% north to $2.84, implying a 60.5% increase from compared to the figure reported the previous year.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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