What happens to stocks if AI loses momentum?
On Monday, Wolfe Research reiterated its Outperform rating on Charles Schwab Corporation (NYSE:SCHW), a $148 billion financial services giant with an impressive 96.99% gross profit margin, maintaining a steady price target of $100.00. According to InvestingPro analysis, the company currently appears undervalued based on its Fair Value assessment. The reaffirmation comes as TD Bank announced its decision to divest its entire stake of approximately 185 million shares, equating to 10.1% of Charles Schwab’s shares, following a strategic review of capital allocation. InvestingPro data reveals that Schwab has maintained dividend payments for 37 consecutive years, demonstrating remarkable financial stability.
Charles Schwab plans to repurchase around 10% of the shares being sold in the secondary offering using $1.5 billion of its own capital. This buyback will reduce the company’s Tier 1 Leverage ratio, including AOCI, to 6.5% from 6.8%. In response to this news and an update on preliminary metrics for January, Charles Schwab’s stock experienced a 3% drop.
Wolfe Research noted that they had previously identified the potential sale of TD Bank’s stake as a significant headwind for Charles Schwab’s share performance. Despite the anticipated weakness in the stock price leading up to the secondary offering announcement, Wolfe Research views the stake sale as the removal of a considerable technical obstacle. The firm maintains its positive outlook on the stock, citing a 23% upside potential to their $100 price target.
The analyst also highlighted that Charles Schwab’s decision to buy back a larger amount of shares than expected could indicate a readiness to return capital to shareholders sooner than previously thought. In addition to the stake sale news, Charles Schwab provided insights into January’s performance, reporting core net new assets (NNA) of about $30 billion, representing a 3.6% annualized organic growth. Daily average revenue trades (DARTs) were up 25% year-over-year at 7.3 million, and transactional sweep cash averaged around $400 billion, compared to $393.7 billion in November and $418.6 billion in December of 2024. The company also reduced supplemental funding by approximately $4 billion.
While January’s results are considered relatively standard, the continued paydown of high-cost funding despite a decrease in sweep cash is seen as a positive sign. Complete monthly results are expected to be released at 8:45 AM ET on February 14th. With a solid financial health score of "GOOD" from InvestingPro and strong recent performance, investors can access 8 more exclusive ProTips and comprehensive analysis through the Pro Research Report, which provides deep-dive insights into what really matters for smarter investment decisions.
In other recent news, Charles Schwab Corporation has been in the spotlight due to a series of significant developments. Jefferies has affirmed a Buy rating for the company, setting a price target at $95.00, and highlighted Schwab’s plan to repurchase approximately $1.5 billion of its shares from TD’s 10.1% ownership stake. This move showcases Schwab’s increased financial flexibility, with an anticipated adjusted Tier 1 Leverage ratio of around 6.5% following the transaction.
On the other hand, TD Bank Group announced its decision to divest its entire equity investment in Charles Schwab. The divestiture will take place through a registered offering and a share repurchase by Schwab. TD plans to allocate C$8 billion from the proceeds to repurchase its own stock, with the remaining funds to be reinvested into the company.
Simultaneously, Charles Schwab is set to repurchase $1.5 billion of its nonvoting common stock from TD, contingent on the secondary offering’s completion. This repurchase is part of Schwab’s ongoing share repurchase program, which will have approximately $7.2 billion remaining for future repurchases following this transaction.
Lastly, Trump Media and Technology Group Corp. has announced a strategic expansion into financial services, with Charles Schwab custodianing the investment. The company plans to invest up to $250 million of its cash reserves into the fintech space.
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