Will Schwab's Recent Moves Pay Off?

Earnings season has begun, and next Monday, Charles Schwab (SCHW -0.40%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed kneejerk reaction to news that turns out to be exactly the wrong move.

Schwab has been a longtime leader in the discount brokerage space, taking advantage of the rise of the Internet to offer a wide array of services to customers. Yet the market meltdown hurt its core business in several ways, and the company has had to work hard to recover ever since. Let's take an early look at what's been happening with Schwab over the past quarter and what we're likely to see in its quarterly report.

Stats on Schwab

Source: Yahoo! Finance.

Will Schwab benefit from market records this quarter?
Analysts have had mixed views on Schwab's earnings lately. In the past month, they've cut their consensus for the just-ended quarter by $0.01 per share, but they boosted their full-year 2013 calls by a penny per share as well. Investors have gotten more optimistic lately, with the stock up 13% since early January.

Schwab has done its best to capitalize on increased interest in investing in light of the big run-up in the stock market. In January, the company topped $2 trillion in total client assets for the first time ever, and as of February, it had seen a 13% jump in assets. Yet trading activity remains muted, with just a 1% year-over-year increase in daily average trades.

In order to encourage greater investor participation, Schwab recently boosted its presence in the red-hot exchange-traded fund market. Schwab pioneered commission-free ETF investing more than three years ago, but since then, rivals had cut into Schwab's minimalist lineup of proprietary ETFs with broader deals. TD AMERITRADE (AMTD) had issued a lineup of more than 100 no-commission ETFs from various fund families, drawing investors interested in greater variety of funds. In response, Schwab came out with its ETF OneSource platform, topping TD Ameritrade with 105 ETFs.

The big potential for Schwab lies in going after 401(k) accounts. Currently, mutual funds dominate 401(k) plan investment options, but ETFs are making inroads into the multitrillion-dollar industry. Despite existing competition from TD AMERITRADE and Capital One's (COF -1.95%) ShareBuilder -- and with Fidelity's recent expansion of its ETF partnership with BlackRock's (BLK -0.68%) iShares unit signaling another potential entrant to the space -- Schwab's plans to launch an all-ETF 401(k) plan next year could tap a larger part of a lucrative market.

In Schwab's quarterly report, look for more information on the impact that its commission-free ETFs are having on its overall business. With a big investment in ETFs already, Schwab needs to see a payoff from the strategy -- especially during such a big bull market. 

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