Charles Schwab (SCHW) Earnings Analysis - FA + TA

$Charles Schwab(SCHW)$ is expected to release its earnings figures for Q3 on 16 October 2023 before market open.

Analysts are predict earnings of $0.74 per share as compared to $1.10 per share in Q3 2022. Market is expecting sales of $4.64 billion, which is an decrease of 15.66% over Q3 2022.

Last week, we saw Charles Schwab share price drop by 0.77% to $51.51 on 12 Oct (Thursday). Thursday session was an all-around poor trading session for the stock market, with the S&P 500 Index falling 0.62% to 4,349.61 and Dow Jones Industrial Average falling 0.51% to 33,631.14.

Charles Schwab stock’s fall on Thursday stop a four-day winning streak. Till date, Charles Schwab has dropped $35.12 from its 52-week high ($86.63), which was obtained on 09 Jan 2023.

Despite the losses, SCHW still outperform its competitors on Thursday, Blackstone Inc. $(BX)$ fell 2.25% to $104.86, Morgan Stanley $(MS)$ fell 1.38% to $77.81, and BlackRock Inc. $(BLK)$ fell 1.01% to $636.17.

Would Charles Schwab return to its winning streak with its Q3 earning release? In this article I would be looking at its past earnings, technical analysis and how the options trading has stacked up as well.

Fundamental Analysis - Past Earnings EPS Forecast vs Actual

Based on last 4 quarter of EPS, we can see that Charles Schwab has beaten its forecast EPS most of the time, and it has been quite a good margin.

Fundamental Analysis - Year to Date Earnings

Charles Schwab has not been performing if we look at how its share price has dropped since its high on 09 Jan 2023, and it has decreased more than 30% year-to-date.

Despite this drop in share price, Charles Schwab is still able to generate a 1.89% dividends. I would be expecting Charles Schwab to beat the EPS forecast and this should bring the share price higher.

Share Price Changes Before and After Earnings

If we look at how it has traded on last Q2 earnings release, where there is a better EPS forecast of 0.04 (0.71 -> 0.75), we can see that share price went up by more than 10% the day after its earnings.

I would be expecting the EPS to be in the range of 0.80 to 0.82. This would give Charles Schwab a better potential to garner a more than 5-10% increase in its share price in 17 Oct 2023 trading.

Charles Schwab Ownership Overview

Even though we can expect share price to increase because of better EPS as seen in he last earnings release in July, but we need to be aware of how traders and investors would be trading.

We can see that more than 50% of shares ownership is held by individual investors, this could mean investors sentiment and how they view price action is important.

I will be looking how the technical indicators are showing us on how the share price would move.

Technical Indicator - Simple Moving Average (SMA) - 50-day MA period

As we can see, SCHW is currently trading way below its 50-day MA period, and in order for it to be above, it need to move back to above $65 similar to what happen in July 2023.

This provided that SCHW could provide a much better EPS than forecast, due to the market uncertainty, we will need to see its performance from its asset management business.

In Q2 2023, SCHW beat the EPS estimate as results benefited from solid performance of the asset management business.

The tailwinds in the form of absence of fee waivers and solid brokerage account numbers could mean a fall in revenues due to higher funding costs, lower volatility and softer investor sentiments posed a major headwind.

Technical Indicator - Average Directional Index (ADX)

Though ADX is showing to be near 40, expecting a strong trend but a higher -DI than +DI is showing a bearish downside move.

Moreover with concerns like the economic slowdown, the central bank’s hawkish monetary policy and other geopolitical issues remain, there have been ambiguity among investors in Q3 despite risk of a near-term recession fading.

Market volatility and client activity were restrained because of these macro factors. On top of that, SCHW’s trading performance is expected to have been impacted by the temporary attrition of TD Ameritrade clients and advisors.

Technical Indicator - Relative Strength Index (RSI)

Looking at how the macros factors are contributing to SCHW’s trading performance, we could see that RSI begin to enter from Oversold to normal, this could be an indication that traders and investors would be adopting a wait-and-see attitude before planning any move.

This might be a time to monitor how things in the macros side are moving and whether SCHW could give a stellar EPS beat.

Summary

Based on what I have observed historically, SCHW share price would increase if the EPS beat is stellar but we need to consider how impactful is the macros when that happen.

I would suggest that we monitor how SCHW would be trading in terms of price action after its earnings release before deciding to take a position.

Appreciate if you could share your thoughts in the comment section whether you think Charles Schwab would come up with a better-than-expected sales and EPS result?

@TigerStars @Daily_Discussion @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.