On Wednesday, Deutsche Bank updated its outlook on Charles Schwab Corp. (NYSE: NYSE:SCHW), reducing the price target to $79 from the previous $84, while still retaining a Buy rating on the stock.
The adjustment follows management's comments that early July trends indicate a return to normalcy in net new assets (NNA) and a reaffirmation of growth expectations. Management expects NNA growth to resume its 5-7% pace over time, with transactional cash balances likely to start growing again this summer.
The positive outlook is partly due to increased client engagement from Ameritrade users within the Charles Schwab platform. Notably, net new assets from Ameritrade clients, which had previously been declining, have now turned positive. This change is considered a crucial first step towards achieving long-term organic growth rates.
Charles Schwab aims to further boost growth by integrating Ameritrade's retail clients into the Schwab financial consultants advisory model. One-third of the overall enrollments in advisory solutions are now from former Ameritrade retail clients. This integration is expected to help elevate these clients to the 5-7% organic growth benchmark set by legacy Schwab customers.
The revised price target comes after Deutsche Bank conducted model revisions, taking into account the recent developments and management's strategies for growth. Despite the reduction in the price target, the firm's stance on Charles Schwab remains positive, as reflected in the maintained Buy rating.
In other recent news, JPMorgan has revised its price target for Charles Schwab Corp, lowering it to $78 from the previous $82. This decision comes in the wake of Schwab's second-quarter 2024 earnings report, which revealed an adjusted earnings per share (EPS) of $0.73, in line with consensus's expectations.
The report also noted a slight improvement in net interest income and adjusted expenses but raised concerns about the company's growth in net new assets and reliance on short-term funding.
In recent developments, Charles Schwab reported significant growth in its latest earnings call, with net new assets surpassing $150 billion and nearly 1 million new brokerage accounts established. The wealth business of Schwab also experienced a 56% year-over-year increase in net flows, now standing at $25 billion.
The company's executives have outlined plans to enhance lending capabilities and client experience, expecting a rise in net interest margin to 3% by the end of 2025. Schwab also projects a return to robust revenue and earnings growth starting late 2024, with an anticipated annualized growth in net new assets between 5% to 7%.
Despite these positive developments, regulatory accrual and FDIC surcharge have impacted earnings, and earnings are expected to be flat from Q2 to Q3. However, Schwab remains committed to its long-term strategy focusing on organic growth, with plans to leverage third-party banks for deposits.
InvestingPro Insights
As Charles Schwab Corp. (NYSE: SCHW) navigates the financial landscape, recent data from InvestingPro offers additional context to their performance and potential. With a market capitalization of $123.27 billion and a Price/Earnings (P/E) ratio of 31.28, the company is positioned as a significant player in the financial services industry. Adjusted figures indicate a P/E ratio of 25.18 over the last twelve months as of Q2 2024, suggesting a more favorable earnings outlook than the unadjusted P/E might imply.
InvestingPro Tips indicate that despite analysts revising their earnings expectations downwards for the upcoming period, Charles Schwab has a history of maintaining dividend payments, with a track record of 36 consecutive years. This consistency in returning value to shareholders may provide some reassurance amidst the stock's recent price volatility, which saw a weekly total return drop of -9.65%. Moreover, the company's commitment to profitability is underscored by predictions that it will remain profitable this year, a sentiment supported by its positive performance over the last twelve months.
For investors seeking a deeper dive into Charles Schwab's financials and future prospects, 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, unlocking access to comprehensive analysis and metrics that could inform investment decisions. Visit https://www.investing.com/pro/SCHW for further insights.
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