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How Will Charles Schwab Perform in 2Q16?

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Charles Schwab’s growth trajectory

Charles Schwab (SCHW) is expected to post 2Q16 earnings per share (or EPS) of $0.33 as compared to $0.25 in the corresponding quarter of last year backed by an expected growth of 15% in its top line. For the full year, the company is expected to post EPS of $1.25 with an implied growth rate of 29% and price to earnings of 20x.

Estimates2

Charles Schwab’s 1Q16 earnings met Wall Street analysts’ diluted earnings per share estimate of $0.29. The company posted a rise in its net profits to $412 million in 1Q16, up by 36% compared to 1Q15 but lower than net profits of $416 million reported in 4Q15. Its strategy to help clients manage wealth rather than just provide brokerage services has proven to be beneficial over the last few quarters.

Charles Schwab’s revenues stood at $1.8 billion in 1Q16, up by 16% in comparison to 1Q15. Its client assets rose by 1% to $2.6 trillion in 1Q16. Volatility among stocks and currencies remained high during the June quarter, which is expected to boost Charles Schwab’s top line.

Among Charles Schwab’s peers in the brokerage industry, Interactive Brokers Group (IBKR) and TD Ameritrade Holding Corporation (AMTD) will report their earnings for the comparable quarter on July 19. E*TRADE Financial Corporation (ETFC) will report its earnings on July 21.

Together, these companies form 1.4% of the Vanguard Financials ETF (VFH).

Financial services

Charles Schwab offers services to its retail and institutional clients through two segments. The Investor Services segment provides the following services:

  • retail brokerage
  • banking services
  • retirement plan services
  • corporate brokerage services

The Advisor Services segment provides the following services:

  • custodial, trading, and support services
  • retirement business services

In the following parts of the series, we’ll discuss Charles Schwab’s expected trades, revenues, strategic initiatives, dividends, and valuations.

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