2023-11-24 03:59:40 ET
Summary
- Charles Schwab Corporation's Q3 2023 earnings reflect financial challenges, but the company remains resilient and adaptable in a volatile economic and political environment.
- Despite a decrease in net income, Schwab's long-term trend remains positive.
- Technical analysis suggests that Schwab's stock price is consolidating at critical levels, indicating a possible base formation and potential for future growth.
The Charles Schwab Corporation (SCHW) faced significant financial challenges, reflected in Q3 2023 earnings report . The company's financial performance stood out as a testament to its resilience and adaptability in global economic and political instability. This article offers insight into the company's financial stability based on the Q3 2023 earnings and provides technical analysis to discern the future trajectory of its stock price and potential investment avenues. Notably, the stock price appears to be consolidating at technical support levels, indicating a possible base formation.
Charles Schwab's Q3 2023 Financials
Charles Schwab Corporation encountered a challenging economic environment, as seen in the earnings results of Q3 2023. The net income dropped to $1.125 billion for the quarter, a decrease from $2.0 billion in Q3 2022. Over the year's first nine months, the net income reached $4.0 billion, down from $5.2 billion in the same timeframe the previous year, reflecting the effects of global economic and political uncertainties. The chart illustrates the quarterly net income, indicating a downturn in the 2023 figures. However, despite this recent decrease, the long-term trend remains positive, with a net income of $10.68 billion in 2022.
CEO Walt Bettinger highlighted the firm's resilience in these challenging times. Schwab continued to gain client trust, evidenced by high Client Promoter Scores and recognition from external parties. The company's focus on client-centered growth was practical, attracting $46 billion in new core assets during Q3 2023, including $27 billion in September alone, underscoring Schwab's strong market position amidst the Ameritrade client integration.
The successful transfer of $1.3 trillion in Ameritrade client assets was a notable operational achievement, carried out with minimal disruption to clients, underlining Schwab's dedication to client service. The company also focused on enhancing client offerings, including a new comprehensive trading platform and expanding services like Schwab Wealth Advisory™, Wasmer Schroeder™ Strategies, and Schwab Personalized Indexing®.
Schwab's revenues in Q3 2023 were $4.606 billion, a 16% year-over-year decrease, affected by higher funding costs, fewer interest-earning assets, and less trading activity. While net interest revenue fell by 24%, the firm's asset management and administration fees reached a record $1.2 billion, up 17% from the previous year. Despite the challenges, Schwab's annual revenue remains robust, with a total of $20.76 billion in 2022, reflecting the company's solid net income for the same year.
In managing its finances, Schwab balanced growth with cost control. GAAP expenses were reported at $3.2 billion, including acquisitions, integrations, and restructuring costs. Adjusted expenses increased modestly by 5% from the previous year. The company also reported pre-tax solid profit margins, demonstrating its operational efficiency and strategic financial handling.
From a balance sheet standpoint, Schwab emphasized flexibility to support its growing client base. The company raised about $2.4 billion by issuing senior notes and managing cash flows to lower supplemental borrowings. Its capital levels and leverage ratios showed a solid financial foundation, enabling continued growth and stability.
Moreover, the company reported $16.1 billion in core net new assets in October 2023, excluding clients originating from Ameritrade, while the total across all clients was $11.3 billion. This reflects a decline from former Ameritrade clients and impacted tax disbursements in states like California. Total client assets reached $7.65 trillion, a 9% increase from October 2022 but a 2% decrease from September 2023. Client cash and bank deposits totaled $397.9 billion, influenced by tax disbursements and seasonal advisory fees. The transactional sweep cash ratio stood at 5.2%.
Though impacted by a challenging economic climate, Charles Schwab's financial performance in Q3 2023 demonstrates the company's resilience and strategic adaptability. The firm's commitment to client service and expansion of its offerings, despite a downturn in some revenue streams, highlights its ability to maintain a robust market position. With a strong foundation in client trust and financial stability, Schwab is well-positioned to navigate future uncertainties and continue its long-term growth and success trajectory.
Navigating Technical Price Patterns
Schwab's long-term prospects appear optimistic, as evidenced by the monthly chart below. Notably, the stock price established a rounding bottom pattern, reaching its lowest point at $4.73 in 2003. After breaking the blue trend line in 2013, the stock has been on an upward trajectory, consistently achieving new highs. This significant rally was driven by strategic expansions, robust financial performance, and favorable market conditions.
Schwab successfully executed a series of growth initiatives following 2013, including expanding its client base and launching innovative products and services, which substantially increased its assets under management. The company's focus on leveraging technology to enhance customer experience and operational efficiency also played a crucial role. Additionally, the broader economic environment, characterized by a strengthening stock market, rising interest rates, and improved investor confidence, provided a conducive backdrop for Schwab's growth from 2013 to 2018. These factors, combined with the firm's consistent financial performance marked by steady revenue growth and profitability, made Schwab an attractive option for investors.
SCHW Monthly Chart (stockcharts.com)
Another significant rally was observed during 2020 and 2021, primarily driven by strategic initiatives and favorable market conditions. In 2020, despite the initial market downturn caused by the COVID-19 pandemic, Schwab's decision to eliminate trading commissions in late 2019 positioned it favorably in a rapidly evolving brokerage industry, leading to an influx of new accounts and higher trading volumes as retail investors entered the market. The acquisition of TD Ameritrade , announced in late 2019 and completed in 2020, further bolstered its market position, creating a brokerage behemoth with increased scale and resources. Additionally, Schwab benefited from the broader stock market recovery and rally, fueled by unprecedented fiscal and monetary stimulus measures. These factors, combined with Schwab's robust digital platform and strong brand, contributed to investor optimism and a consequent rise in its stock price during this period.
Following this substantial surge, the stock price reached an all-time high of $93.59, encountering solid resistance at the upper boundary of an ascending broadening wedge before retracting to the pattern's support level. This ascending broadening wedge pattern underscores the market's heightened volatility. However, the stock stabilizing within the robust support zone of $40-$45 suggests that a base is forming, potentially setting the stage for an impending market rally. Conversely, the RSI remains under the neutral 50 mark, signaling potential price weakness and the chance of a further decline before any upward movement.
This optimistic view is further seen in the weekly chart, which illustrates a red channel pattern. The recent low of around $45 occurred at a critical support area, followed by a constructive rally. Should the stock price fall from its current position, it's anticipated to encounter substantial support within the $40-$45 range, as indicated by the channel's lower boundary.
SCHW Weekly Chart (stockcharts.com)
Market Risk
The Charles Schwab Corporation's financial results for Q3 2023 reflect the challenges posed by the broader economic and political landscape. Despite a resilient performance, with net income of $1.1 billion for the quarter, there is a noticeable decline from the $2.0 billion reported in the same quarter of 2022. This reduction mirrors the impact of global uncertainties, which could continue to affect the company's financial performance. While Schwab has demonstrated adaptability in these conditions, its future earnings could be further impacted by ongoing global economic volatility, changes in monetary policies, and geopolitical tensions. These factors can influence client investment behavior, market valuations, and interest rate movements, all critical to Schwab's revenue streams.
Moreover, the technical analysis of Schwab's stock price reveals a bullish long-term outlook and highlights the market's heightened volatility. The formation of an ascending broadening wedge pattern and the RSI lingering under the neutral 50 mark suggest potential price weakness and volatility in the short term. While the stock price shows signs of stabilizing in the support zone of $40-$45, indicating a base for potential growth, it remains sensitive to broader market trends and investor sentiment. A monthly close below $40 will negate the bullish trend and indicate further downside.
Bottom Line
In conclusion, Charles Schwab's earnings results for Q3 2023 underscore the company's resilience and strategic adaptability in a challenging global economic and political landscape. With a net income of $1.1 billion for the quarter, down from $2.0 billion in Q3 2022, the company has successfully navigated these rough waters through its focus on client-centered growth, operational efficiency, and expansion of services. This adaptability is further evidenced in its robust annual revenue of $20.76 billion in 2022 and continued growth in client assets despite fluctuating market conditions.
Moreover, the technical analysis of Schwab's stock reveals a long-term bullish outlook. The stock's price behavior, forming a base in the $40-$45 range, suggests potential for future growth. Investors may consider initiating or increasing their long positions in the stock at its current levels, with a strategy to incrementally add to these positions if the price declines toward $40-$45 range. This approach hinges on the condition that the stock's monthly closing price remains above the $40 threshold.
For further details see:
Charles Schwab: Expecting A Bottom At The Technical Support Level