Charles Schwab Reports Earnings Wednesday. What to Expect.

For all of 2023, analysts forecast that Charles Schwab will report EPS of $3.12 and revenue of $18.9 billion. Those figures would be down from $3.90 and $20.8 billion for 2022.

Charles Schwab, one of the nation’s largest financial-services companies, suffered in 2023 as higher interest rates prompted customers to move uninvested cash out of low-yielding sweep accounts at Schwab’s bank into better-paying options such as money-market funds. This process is known as cash sorting, and it pressures Schwab’s earnings in two ways. First, the company earns less on those other cash products than it does on the sweep accounts. Second, when sweep-account outflows exceed cash on hand, Schwab has to rely on expensive short-term funding.

The company’s stock took a hit during March’s regional bank crisis as investors focused on cash sorting, but shares rebounded late last year on signs the problem was abating and on expectations the Federal Reserve will begin to reduce interest rates in 2024.

The stock, trading at $64.36 on Tuesday afternoon, is down 23% over the past 12 months. 

“Schwab is starting to break out as cash sorting abates and client cash inflects following the peak in interest rates,” William Blair analyst Jeff Schmitt writes in a Jan. 10 research note. “The stock has moved to $67 after being stuck under $60 for most of the time since March 2022, and we expect it to continue picking up steam due to several factors.”

For example, as sweep account cash levels stabilize, Schwab should be able to pay down its short-term borrowings, and cost-cutting initiatives should keep expenses flat. Schwab laid off approximately 2,000 employees late last year. Share buybacks could re-emerge in 2024, the analysts write. A combination of strong EPS growth and an expansion of the forward price/earnings ratio to its historical range of 18 to 20 should propel the stock higher over the next 12-18 months, they add.

Investors will also be listening for new information on Schwab’s efforts to integrate TD Ameritrade. The company serves as the largest custodian of assets for registered investment advisors. Last year, some advisors who held their assets at TD Ameritrade complained of problems when Schwab migrated their accounts to its platform.

Investors will also be looking at Schwab’s flows of client assets. The company typically rakes in tens of billions of dollars of net new assets each month, but that metric suffered last year as some retail customers and advisors of TD Ameritrade decided to take their assets elsewhere ahead of the account migration. With the bulk of former TD Ameritrade clients now on Schwab’s platform, such attrition could largely be behind Schwab.

Wednesday’s results should give investors an early indication of whether Schwab has put the troubles of 2023 in the rear window.

Write to Andrew Welsch at [email protected]