Schwab Expects 4th-Quarter Jump
Charles Schwab Corp. said Wednesday that it expects fourth-quarter net income to rise as much as 67%, topping analysts’ estimates, as online trading has surged.
Schwab’s shares posted their biggest one-day gain since October 1987, jumping $7.69, or 22%, to close at $42 on the New York Stock Exchange, after the firm said it will earn between $162 million and $171 million, or 19 cents and 20 cents a share, in the quarter ending this week. The results would beat the average forecast of 17 cents a share, based on First Call Corp.’s survey of 13 analysts.
The San Francisco-based firm’s forecast spurred gains in rival Internet brokers, whose trading volume dropped 8% overall in the third quarter. Shares of E-Trade Group Inc. rose $2.75, or 11%, to $28.50, and Ameritrade Holding Corp. jumped $2.88, or 14%, to $23.38. Both trade on Nasdaq.
Schwab’s report confirms that “it was a very good market for online brokers this quarter,” said Paul Stocking, an analyst at American Express Financial Advisors. “December was ahead of expectations.”
The average number of trades per day from which Schwab earns commissions rose 16% from November to a record 236,000 through Dec. 27. That eclipsed its previous record of 207,000, set last April, by 14%.
The company, which typically makes about 45% of its revenue from commissions, estimates that revenue will rise to $1.1 billion in the current quarter. That’s up 39% from $789 million in the year-ago period.
“The question is: Will this carry into next year?” Stocking said. “If past patterns hold, January should be a good” start to the first quarter, as money flows into mutual funds.
Salomon Smith Barney and BancBoston Robertson Stephens analysts raised quarterly earnings estimates for E-Trade and Ameritrade three weeks ago, citing a rise in customer trading volumes. Lehman Bros. analyst Richard Repetto expects Internet brokerage trading to increase an average of 30% in the fourth quarter from a year ago, as small investors continue to pour into hot technology stocks.
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Bouncing Brokers
Though many brokerage stocks remain well off their peaks, the sector has surged in the fourth quarter amid a pickup in online trading. Here are the 52-week intraday highs and lows for selected brokerage stocks, along with their gains since Oct. 1:
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% chg. Ticker 52-week 52-week Wed. since Company symbol high low close Oct. 1 Morgan Stanley MWD $140.19 $70.81 $138.94 +56.4% TD Waterhouse TWE 27.25 11.44 17.13 +31.2 Ameritrade AMTD 62.81 4.69 23.38 +29.5 Charles Schwab SCH 77.50 25.44 42.00 +29.0 E-Trade Group EGRP 72.25 11.63 28.50 +22.9 Merrill Lynch MER 102.50 62.00 79.94 +21.3 S&P; 500 index SPX 1,467.47 1,206.59 1,463.46 +14.1
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Source: Bloomberg News, Times research
