Charles Schwab (NYSE: SCHW) has seen its stock gain 10% year-to-date, outperforming its peer BlackRock (NYSE: BLK) which is up only 3% YTD and underperforming against the S&P 500 index which has risen 18%. The company is set to report its fiscal Q2 2024 results on July 16, and expectations are high for it to surpass street estimates for revenues and earnings. In the previous quarter, Charles Schwab beat earnings consensus, reporting total revenues of $4.74 billion, down 7% year-over-year due to lower net interest income and trading revenues. However, growth in asset management and administration fees, as well as bank deposit account fees, supported the top line. An improvement in net interest income is expected in Q2.
Despite showing strong gains of 35% since early 2021, rising from $55 to around $75, Charles Schwab’s stock performance has been inconsistent. It gained 59% in 2021, but saw declines of 1% in 2022 and 17% in 2023, underperforming the S&P 500 in the latter year. Beating the S&P has been a challenge for many individual stocks and even sector heavyweights in recent years, but the Trefis High Quality Portfolio has consistently outperformed the benchmark index, providing better returns with less risk. As the macroeconomic environment remains uncertain with high oil prices and elevated interest rates, the question arises whether Charles Schwab will face a similar situation as in 2023 and underperform the S&P, or see a strong jump in performance.
Revenues for Charles Schwab are expected to edge past estimates, with a forecast of $19.66 billion in FY 2024. Net interest income fell by 12% year-over-year in 2023, followed by a 19% drop in Q1 2024, but some growth is expected in the second quarter. Trading revenues also declined in 2023 and Q1, likely following the same trend in Q2. Asset management and administration fees, on the other hand, increased both in 2023 and Q1, with expectations for similar performance in the second quarter. Trefis estimates net revenues for fiscal Q2 2024 to be around $4.77 billion, slightly above the consensus estimate.
Earnings per share (EPS) for Charles Schwab are forecasted to top the consensus, with expectations of $0.75 per share for Q2 2024, 4% above the consensus estimate of $0.72. Adjusted net income saw a 30% year-over-year decrease in FY 2023 partly due to lower revenues and higher noninterest expenses. The trend continued in Q1 2024, with an 18% drop in adjusted net income. However, improvement in the net income margin is expected for Q2, leading to an annual GAAP EPS of $3.32 for FY 2024. The stock price estimate is 4% above the current market price, with a valuation of $78 based on an EPS estimate of $3.32 and a P/E multiple of just below 24x for fiscal 2024.
Overall, while Charles Schwab has shown strong gains in recent years, its stock performance has been inconsistent. However, expectations are high for the company to surpass street estimates in its upcoming fiscal Q2 2024 results. With forecasts for revenues to edge past estimates and EPS to top the consensus, there is optimism surrounding Charles Schwab’s performance in the coming quarters. Despite challenges in the macroeconomic environment, the company’s valuation is projected to be 4% above the current market price, indicating potential for future growth and value for investors.
