Charles Schwab Poised for Earnings Beat: Zacks

April 13, 2018 — 1:01 PM EDT

Charles Schwab is the first of the discount brokerages gearing up to report quarterly earnings results, with the company weighing in before Monday’s market open. With the San Francisco-based brokerage benefiting from a rise in total client assets and new brokerage accounts, Zacks Investment Research expects it to surprise on the upside. After all, the brokerage was able to surpass the Zacks Consensus estimate for the fourth quarter with revenue growth, a "significant" rise in total client assets and a jump in new brokerage accounts. However, Zacks did note that higher expenses and decreases in trading revenues could pressure performance.

"According to our quantitative model, it is quite likely that Schwab will be able to beat the Zacks Consensus Estimate in the first quarter," wrote Zacks. "This is because it has the right combination of the two key ingredients – a positive Earnings ESP and a Zacks Rank #3 (Hold) or better – which is required to be confident of an earnings surprise call."

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For its fourth quarter, The Charles Schwab Corporation (SCHW) reported double-digit growth in revenue and new customers. For all of 2017, the brokerage said that it added 1.4 million new accounts, with its Schwab retail business increasing 49% from 2016. Of those new retail accounts, the brokerage said that 54% came from households with investors that were age 40 or younger. Core net new assets for the year were a record $198.6 billion, a 58% increase year over year and equating to a 7% organic growth rate. Retail and advisor services net new assets jumped 57% and 59%, respectively, when compared with 2016. Total client assets as of the end of 2017 stood at $3.36 trillion, up 21% from the end of 2016.

But the first quarter of 2018 has been different than last year given the volatility in the stock market and the mid-February correction. That has resulted in a decline in daily average revenue trades, or DARTs, at some of the brokerages as investor sit on the sidelines or panic and move to cash. Still, Zacks expects Schwab to report EPS of $0.53 for the first quarter, which would mark a 35.9% year-over-year increase.

"Overall trading activities remained strong during the quarter, driven by significant market volatility, specifically in the months of February and March," wrote Zacks. "Notably, Schwab opened 165,000 and 138,000 new brokerage accounts in January and February, respectively, indicating that investors were interested in entering the market. Also, the company's efforts toward lowering trading fees should have helped in adding more brokerage accounts." Zacks expects Schwab to have added 10,936 active brokerage accounts for the first quarter, which would be up 6% year over year.