Charles Schwab (NYSE:SCHW) CFO Peter Crawford provided insight and commentary regarding the company's financial picture. May metrics showed ongoing moderation of cash sorting into early June, partially offset by a lower revenue guide for Q2 and lighter-than-expected organic growth in May.
The company expects Q2 revenues to decrease 10%-11% year-over-year, which implies revenue in the range of $4.5-$4.6 billion, below the consensus estimate of $4.72B. NIM is expected to contract ~35bps quarter-over-quarter, implying a Q2 NIM of ~184bps, compared to the consensus estimate of 189bps.
According to Crawford, the company's strong business momentum continued in May, with $150B in year-to-date core net new assets and nearly 1.7 million new accounts. The company successfully migrated over five million Ameritrade accounts to the Schwab platform over Memorial Day Weekend.
In addition, the average daily pace of net outflows from bank sweep deposits and BDA balances declined for the fourth month in a row, showing a 65% improvement month-over-month to approximately $350M.
Goldman Sachs commented on the company, mentioning that the lower expected revenues are a function of lower NII (amid higher funding costs) and softer trading activity. While noting that this is clearly putting some pressure on Q2 EPS estimates, the bank continues to think that stabilization in Charles Schwab’s core deposit base is the single most important leading indicator for the stock, and finds the continuation of recent improvement encouraging.
Deutsche Bank believes May metrics were mixed overall, implying Q2 EPS of ~$0.70-$0.72, compared to the consensus of $0.77. The bank views the dynamic of continued improvement in cash sorting as particularly positive for the shares considering its depressed valuation. The firm reiterated its Buy rating and $71 price target on the shares.