Musk threatens Apple with legal action over App Store bias towards OpenAI
On Tuesday, Morgan Stanley (NYSE:MS) analysts upgraded Charles Schwab Corporation (NYSE: NYSE:SCHW) stock rating from Equal-weight to Overweight, while also reducing the price target to $76 from the previous $91. The revision reflects a positive outlook on the company's unique earnings recovery potential and the perceived value of the brokerage as a high-quality franchise against a backdrop of economic uncertainty. According to InvestingPro data, the company, currently valued at $127 billion, is showing signs of being undervalued based on its Fair Value analysis, with 8 analysts recently revising their earnings expectations upward for the upcoming period.
The upgrade by Morgan Stanley is based on the belief that Charles Schwab possesses defensive characteristics that make it well-suited to the current economic environment. Analysts pointed out that the company has specific mechanisms in place that could drive a 20% compound annual growth rate in earnings per share over the next two years. This growth is anticipated as Charles Schwab plans to repay expensive wholesale borrowings using proceeds from the maturities of its low-yielding securities portfolio. The company's strong fundamentals are evident in its impressive 97% gross profit margin and consistent profitability over the last twelve months.
The analysts at Morgan Stanley also noted that the impact of tariffs on inflation might prevent the Federal Reserve from implementing rate cuts too soon or too sharply, according to their economists. This scenario is expected to favor Charles Schwab, as nearly half of its revenue is derived from net interest income. In a less certain economic landscape, customer sweep cash balances are likely to grow, potentially offering additional support to the company's earnings. The company's resilience is further demonstrated by its 37-year track record of maintaining dividend payments, with recent dividend growth of 8% year-over-year.
Charles Schwab's revised price target of $76, down from $91, reflects a recalibration of expectations while still signaling confidence in the company's ability to navigate the challenges posed by the current macroeconomic climate. The analysts emphasized the combination of Charles Schwab's defensive positioning and its ability to leverage idiosyncratic levers as key factors contributing to the upgraded rating.
The company's stock response to this news will be closely watched by investors as they consider the detailed analysis provided by Morgan Stanley, highlighting Charles Schwab's potential for earnings stability and growth amidst market uncertainties.
In other recent news, Charles Schwab Corporation reported a notable 44% year-over-year increase in net new assets for February 2025, amounting to $48 billion. Total (EPA:TTEF) client assets reached $10.28 trillion, reflecting a 16% rise from the previous year. Additionally, the company saw a 1% month-over-month increase in daily average trades, totaling 7.45 million for February. In January 2025, Schwab experienced a 75% increase in core net new assets, totaling $30.6 billion, with total client assets reaching $10.33 trillion. The firm also completed a significant $13.1 billion stock sale previously held by TD Group US Holdings LLC, marking TD's exit from its position in Charles Schwab. Analysts from Raymond (NSE:RYMD) James increased the price target for Charles Schwab to $90, maintaining an Outperform rating, citing expected improvements in net interest margin and EPS. JMP Securities echoed this positive sentiment, maintaining a Market Outperform rating with a $94 price target, highlighting strong client acquisition and retention. These developments underscore Charles Schwab's ongoing growth and strategic financial maneuvers.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.