How Tax Reform Could Impact Charles Schwab


Jan. 9 2018, Updated 4:45 p.m. ET

Analyst predictions

Charles Schwab (SCHW) is expected to release its 4Q17 earnings on January 17, 2018. Wall Street analysts have given a low estimate of $0.39 and a high estimate of $0.45 on earnings per share (or EPS) for 4Q17. The average estimate stood at $0.42 on EPS for the same period. This estimate represents no change from the 3Q17 EPS.

Though the tax rates are higher in the US, many companies pay lower rates due to deductions. However, in the past few years, Charles Schwab has been shelling out taxes at an effective rate of approximately 37%.

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Management’s view

According to the chief financial officer of Charles Schwab, the company’s tax rate will be 21% starting at the beginning of this year. However, the company has lost certain deductions. According to the law, banks that have assets of more than $50 billion can’t deduct FDIC (Federal Deposit Insurance Corporation) assessments.

Moreover, in 4Q17, Charles Schwab is expected to witness a rise in tax expenses by $40 million for the purposes of generally accepted accounting principles (or GAAP). On the positive side, the company could see an 11.5% to 12% reduction in the rate from this year.

On an LTM (last-12-month) basis, Charles Schwab has a dividend yield of 0.60%, and peers (XLF) LPL Financial Holdings (LPLA), Wells Fargo (WFC), and Bank of New York Mellon (BK) have dividend yields of 1.7%, 2.5%, and 1.5%, respectively.


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