Will Schwab (SCHW) Keep the Earnings Streak Alive?

The Charles Schwab Corporation SCHW is scheduled to reports its second-quarter 2014 results tomorrow, Jul 16 before the opening bell.

In the preceding quarter, Schwab delivered a 9.1% positive earnings surprise driven by higher revenues and stable non-interest expenses. Moreover, the company recorded an earnings beat in three of the last four quarters with an average surprise of 5.8%.

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.

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

Hence, the combination of Schwab's Zacks Rank #3 and ESP of +4.55% makes us confident of an earnings beat.

Factors to Influence Q2 Results

Schwab has been making significant efforts to lower its dependence on businesses which are sensitive to interest rate. Notably, the company anticipates net interest margin to be nearly 1.60% in the second quarter. Further, its initiatives to diversify revenue sources are commendable as well.

Sluggish macroeconomic conditions will no doubt partly impact Schwab's performance in the quarter. However, the company's monthly activity updates since Apr 2014 affirm an overall increase in total client assets.

Growth in interest earning assets tends to somewhat ease the negative impact of a low interest rate scenario. Therefore, chances are high that Schwab will report improved net interest income in the upcoming release.

However, the company might have further waived its fee in order to attract more clients this quarter. In addition, regulatory spending and compensation expenses will likely keep Schwab's expenses elevated.

Schwab's activities during the quarter failed to win analysts' confidence. Consequently, the Zacks Consensus Estimate for the quarter remained stable at 22 cents per share over the last 7 days.

Other Finance Stocks to Consider

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

The Earnings ESP for BlackRock, Inc. BLK is +0.22% and it has a Zacks Rank #2. The company is slated to release results on Jul 16.

The Blackstone Group L.P. BX has an Earnings ESP of +3.08% and a Zacks Rank #3. It is scheduled to report results on Jul 17.

CIT Group Inc. CIT has an Earnings ESP of +4.65% and a Zacks Rank #3. It is slated to report results on Jul 22.