Schwab (SCHW) Poised to Beat Earnings Estimates? - Analyst Blog

We expect brokerage firm The Charles Schwab Corporation SCHW to beat expectations when it reports first-quarter 2014 results tomorrow, Apr 15, before the opening bell.

Why a Likely Positive Surprise?

Our proven model shows that Schwab is likely to beat earnings because it has the right combination of two key components.

Positive Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, stands at +4.55%. This is very meaningful and a leading indicator of a likely positive earnings surprise for the company.

Zacks #3 Rank (Neutral): Note that stocks with Zacks Ranks of #1 (Strong Buy), 2 (Buy) and 3 (Hold) have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.  

The combination of Schwab's Zacks Rank #3 and ESP of +4.55% makes us confident of an earnings beat on Apr 15.

What is Driving Better-Than-Expected Earnings?

Schwab has been making significant efforts to become less dependent on interest rates. The company's consistent initiatives to increase revenues are commendable as well.

Sluggish macroeconomic conditions will no doubt partly impact Schwab's performance in the first quarter. However, if we observe the company's monthly activity update since Jan 2014, we find a year over-year-improvement in total client assets.

Growth in interest earning asset balance tends to ease the negative impact of a low interest rate scenario. Therefore, there are high chances that Schwab might continue to report improvement in net interest income for the first quarter.

Schwab delivered positive earnings surprises in two out four trailing quarters. Moreover, the company has an average earnings beat of 2.0%.

Also, Schwab's activities during the quarter were adequate enough to win analysts' confidence. Consequently, the Zacks Consensus Estimate for the quarter increased 4.8% to 22 cents per share over the last 7 days.

However, there is a possibility that the company might have further waived its fee in order to attract more clients this quarter. Additionally, regulatory spending and compensation expenses will likely keep Schwab's expenses high.

Other Stocks to Consider

Schwab is not the only firm looking up this earnings season. We also anticipate earnings beat from three other companies in this industry:

Investment Technology Group Inc. ITG has an earnings ESP of +6.45% and a Zacks Rank #1. It is scheduled to report first-quarter results on May 1.

The earnings ESP Interactive Brokers Group, Inc. IBKR is +13.79% and it has a Zacks Rank #2. The company is slated to release first-quarter results on Apr 15.

Raymond James Financial, Inc. RJF has an earnings ESP of +1.27% and a Zacks Rank #2. It is slated to report fiscal second-quarter results on Apr 23.