Shares of American multinational financial services company, Charles Schwab (NYSE: SCHW), were down 9.5% on April 18 to close at $74.94, after it reported weaker-than-expected Q1 results. SCHW missed both earnings and revenue estimates for the second consecutive quarter.
The miss is attributed to the recent weakness in the equity market and the volatility negatively impacting margin loan balances, securities lending activity, and client asset valuations.
Q1 Miss
Adjusted earnings of $0.77 per share fell seven cents short of analysts’ expectations of $0.84 per share. The company reported earnings of $0.84 per share for the prior-year period.
Revenues declined 1% year-over-year to $4.67 billion and also lagged consensus estimates of $4.83 billion. The decrease in revenues reflects a 21% decline in trading revenues to $963 million, offsetting a 14% growth in net interest revenues.
Positively, the company registered 11% year-over-year growth in client assets to $7.86 trillion, while brokerage accounts grew 5% to 33.6 million.
CEO Comments
Sharing his views on the strategic initiatives, SCHW CEO, Walt Bettinger, commented, “We remain committed to pushing forward with these and other strategic initiatives even as we keep our TD Ameritrade integration work on schedule, because we know that both fronts are essential elements of our ‘Through Clients’ Eyes’ strategy.”
Wall Street’s Take
Following the quarterly miss, CFRA decreased its price target on Charles Schwab to $89 (18.76% upside potential) from $101, and reiterated a Buy rating.
Overall, consensus among analysts is a Strong Buy based on 10 Buys and two Holds. The average Charles Schwab price target of $104.73 implies an upside potential of 39.75% from current levels. Meanwhile, SCHW shares have gained 13.75% over the last year.
Conclusion
The ongoing geo-political crisis in Ukraine and rising inflation have triggered the recent equity market volatility, leading to the quarterly miss. However, SCHW’s strategic initiatives, as seen in improved active brokerage accounts and total client assets, should help the company deal with the current uncertainties.
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