Monday, Keefe, Bruyette & Woods revised its stance on Charles Schwab Corp. (NYSE: NYSE:SCHW), upgrading the stock from Market Perform to Outperform and raising the price target to $84.00 from the previous $76.00.
The firm's decision comes after observing Charles Schwab's performance, which has been in line with the broader market but lagged behind most of its peers. Notable comparisons include Interactive Brokers (NASDAQ:IBKR) and LPL Financial (NASDAQ:LPLA) Holdings, which have seen gains of 41% and 21%, respectively, while Robinhood (NASDAQ:HOOD) Markets soared by 111%.
The firm had previously downgraded Charles Schwab in January, anticipating challenges in the company's sweep cash trajectory through the first half of 2024. This prediction has largely manifested, affecting consensus earnings estimates.
Despite these challenges, the firm believes that the consensus earnings per share (EPS) for 2026 might still be slightly too high, with their estimate being 5% below the FactSet consensus and 1% below the Visible Alpha consensus.
The upgrade reflects a shift in expectations due to the growing likelihood of Federal Reserve rate cuts in the coming months. The firm suggests that these anticipated rate cuts could positively impact Charles Schwab's sweep cash, leading to an inflection point. Consequently, Keefe, Bruyette & Woods prefers to take a less tactical approach and advocate for an upgrade to Outperform status now, rather than waiting for further developments.
Charles Schwab's stock has increased by 16.8% since mid-January, in step with the broader market's performance during that period. The firm's upgrade indicates a more optimistic outlook for the company's financial prospects in the near term, especially considering the potential influence of the Federal Reserve's monetary policy on Schwab's operations.
In other recent news, Charles Schwab Corp has been the focus of multiple analyst updates. Keefe, Bruyette & Woods maintained their Market Perform rating on the company, highlighting significant net inflows into Schwab's purchased money funds. Barclays (LON:BARC) also held its Equalweight rating, recognizing the company's confidence in sustaining net new asset growth within the historical range of 5-7%, but noted some near-term challenges.
TD Cowen maintained a Buy rating but adjusted the stock's price target downward due to less favorable financial guidance than anticipated. Deutsche Bank (ETR:DBKGn) also cut its price target but maintained a Buy rating, forecasting a significant rebound in earnings per share for Schwab in the upcoming years.
Meanwhile, the Federal Reserve's annual stress test revealed that the largest U.S. banks, including Charles Schwab, have the capital necessary to endure a severe economic downturn. The stress test indicated that in a severe economic scenario, the banks' high-quality capital levels would fall to 9.9% at their lowest, which is still well above the required regulatory minimum. Charles Schwab reported the highest capital ratio of 25.2% under the severe stress scenario.
These developments come amidst recent discussions around Charles Schwab's growth opportunities and financial stability. The company's ability to attract and maintain net inflows into its purchased money funds suggests a stable trend in asset management.
InvestingPro Insights
As Charles Schwab Corp. (NYSE: SCHW) garners a more optimistic outlook from analysts, real-time data from InvestingPro provides additional context to their financial standing. With a market capitalization of $133.82 billion and a notable P/E ratio of 27.16 for the last twelve months as of Q1 2024, Charles Schwab demonstrates significant market presence. However, it is important to note that the company's revenue has seen a decline of 12.98% over the last twelve months, reflecting some of the challenges mentioned by Keefe, Bruyette & Woods.
InvestingPro Tips highlight that Charles Schwab is trading at a high earnings multiple and also at a high Price/Book multiple of 4.03, which could indicate a premium valuation compared to its historical averages. Despite short-term obligations exceeding liquid assets, the company has a strong track record of maintaining dividend payments for 36 consecutive years, showcasing its commitment to shareholder returns. Additionally, analysts predict profitability for the current year, supported by the company's performance over the last twelve months.
For investors interested in a deeper dive into Charles Schwab's financials and strategic positioning, there are additional InvestingPro Tips available. By using the coupon code PRONEWS24, readers can get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, offering a comprehensive set of tools and insights to inform investment decisions.
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