Charles Schwab Corp. (SCHW) soared in trading after its Q3 earnings topped estimates. The financial services company’s adjusted earnings of $0.77 per share in Q3 remained flat year-over-year but topped consensus estimates of $0.75 per share.
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The company’s revenues grew 5% year-over-year to $4.85 billion and were above analysts’ expectations of $4.74 billion.
SCHW Curbed Its Debt in Q3
Additionally, the bank reduced its supplemental funding in the third quarter by $8.9 billion to $64.8 billion. The bank’s supplemental funding includes “repurchase agreements at the banks, Schwab Bank Certificates of Deposit (CDs), and Federal Home Loan Bank balances.”
The reduction in supplemental funding was due to a sequential increase of $9.2 billion in its client transactional cash sweep accounts. Sweep accounts automatically transfer excess funds between a client’s cash and investment accounts.
SCHW’s Management Comments on the Q3 Results
According to a Bloomberg report, outgoing CEO Walt Bettinger remarked on the reduction in supplemental funding by stating, “Some might refer to it as an inflection point, though time will tell.”
Schwab has been navigating its most challenging years in decades as the rapid rise in interest rates has pressured its business. This is because customers withdrew deposits from Schwab’s bank to pursue higher returns through other avenues, forcing the company to turn to more expensive funding sources.
SCHW Issues FY24 Outlook
Looking ahead, Schwab expects FY24 revenue to grow by 2% to 3% year-over-year. While the company anticipates an expansion in its net interest margin through next year, it warned that it might not reach the previously forecasted 3% margin due to the current lower rate environment.
Is SCHW Stock a Buy, Sell, or Hold?
Analysts remain cautiously optimistic about SCHW stock, with a Moderate Buy consensus rating based on eight Buys, seven Holds, and one Sell. Over the past year, SCHW has surged by more than 30%, and the average SCHW price target of $74.40 implies an upside potential of 1.5% from current levels. These analyst ratings are likely to change following SCHW’s results today.
