On Tuesday, Morgan Stanley maintained its Equalweight rating on Charles Schwab Corp. (NYSE: NYSE:SCHW) with a steady price target of $68.00. The firm highlighted a significant uptick in sweep deposits for the company, which saw an increase of $17 billion, or 4.7% month-over-month in September, following several months of consistent withdrawals.
The observation of this deposit growth has led to questions regarding its sustainability. Despite potential concerns that these deposits could be reinvested in October, Morgan Stanley noted an improved fourth-quarter earnings per share (EPS) outlook for Charles Schwab. Additionally, the firm acknowledged the brokerage's reduced net interest margin (NIM) guidance for 2025, along with an expense outlook for the same year that aligns with expectations.
The analysis by Morgan Stanley comes after a period where Charles Schwab experienced persistent outflows. The recent reversal to inflows in September marks a notable shift in the company's deposit dynamics.
The financial services company's future performance is being watched closely, with particular attention to whether the recent deposit growth will be a temporary phenomenon or part of a longer-term trend. Morgan Stanley's commentary suggests a cautious approach to the outlook for Charles Schwab's deposit sustainability and financial projections.
The current assessment by Morgan Stanley reflects the firm's position on Charles Schwab's stock as it stands, without indicating any immediate changes to its rating or price target. The investment firm's reiteration of its stance comes as investors and market watchers consider the various factors that could influence Charles Schwab's financial trajectory in the near term.
In other recent news, Charles Schwab Corporation delivered a robust third-quarter performance, outpacing expectations with earnings per share (EPS) of $0.77, surpassing analysts' consensus estimate of $0.75. This positive performance was driven by strong revenue growth of 3.3% and an adjusted pre-tax margin of 41.2%. In addition, the company reported significant growth in client assets, reaching $9.74 trillion, and opened 324 thousand new brokerage accounts.
Various analysts have adjusted their outlook on Schwab. JMP Securities upgraded the firm's price target to $84, citing a strong Q3 performance. Jefferies maintained a Buy rating but reduced the price target to $73, while BofA Securities maintains an Underperform rating and reduced the price target to $63. Deutsche Bank, Morgan Stanley, and Piper Sandler also made adjustments to Schwab's stock targets.
In executive news, Schwab's CEO, Walt Bettinger, is set to retire at the end of 2024, with President Rick Wurster taking over in 2025. This is part of a long-term succession plan that aims to maintain stability and continuity for Schwab's clients, employees, and stockholders. These are among the recent developments in the ongoing story of Charles Schwab Corporation.
InvestingPro Insights
To complement Morgan Stanley's analysis, recent data from InvestingPro provides additional context for Charles Schwab's financial position. The company's market capitalization stands at $132.1 billion, reflecting its significant presence in the financial services sector.
An InvestingPro Tip highlights that Charles Schwab has maintained dividend payments for 36 consecutive years, which may be of interest to income-focused investors considering the company's long-term stability. This consistent dividend history aligns with the recent positive trend in sweep deposits noted by Morgan Stanley.
Another relevant InvestingPro Tip indicates that 8 analysts have revised their earnings upwards for the upcoming period. This upward revision in earnings expectations correlates with Morgan Stanley's improved fourth-quarter EPS outlook for the company.
Charles Schwab's P/E ratio of 29.95 suggests the stock is trading at a high earnings multiple, which investors should consider in light of the recent deposit growth and future earnings projections discussed in the article.
For readers interested in a more comprehensive analysis, InvestingPro offers 21 additional tips for Charles Schwab, providing a deeper dive into the company's financial health and market position.
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