On Thursday, Morgan Stanley (NYSE:MS) adjusted its outlook on shares of Charles Schwab Corp. (NYSE: NYSE:SCHW), reducing the price target from the previous $73.00 to $71.00, while keeping the rating at Equalweight.
The firm's analysis acknowledges Charles Schwab as a leading asset management and wealth management franchise with a unique story of earnings recovery. Still, they note potential risks that might hinder and delay this recovery, especially if the growth in sweep cash balances does not align with net new assets (NNA).
The firm has revised its earnings per share (EPS) forecast for Charles Schwab for the coming years. The 2024 EPS estimate has been decreased by 3% to $3.26, which still sits 2% above the consensus. For 2025, the projection has been lowered by 2% to $3.94, which is 9% below the consensus. Additionally, the 2026 EPS forecast is down by 3% to $5.10, slightly 2% below the consensus.
The new stock price target of $71.00 is based on a 15 times discounted multiple of the estimated 2026 earnings and an 18 times multiple on the forecasted 2025 EPS. Morgan Stanley's updated valuation reflects a cautious stance on the company's near-term earnings potential, while still recognizing its position in the market.
Charles Schwab's stock performance will continue to be monitored by investors as the company navigates the identified risks and strives to achieve its earnings recovery amidst a dynamic financial landscape. The firm's revised targets and expectations set a new benchmark for the company's financial outlook in the next few years.
In other recent news, Charles Schwab Corp has seen a flurry of analyst activity. Keefe, Bruyette & Woods upgraded the company's stock from Market Perform to Outperform, raising the price target to $84.00. This decision was influenced by the likelihood of upcoming Federal Reserve rate cuts, which are expected to positively impact the company's sweep cash. However, the firm also noted that consensus earnings per share (EPS) for 2026 might be slightly too high.
Despite facing some challenges, Charles Schwab continues to attract significant net inflows into its purchased money funds, as pointed out by both Keefe, Bruyette & Woods and Barclays (LON:BARC). Barclays maintained its Equalweight rating on the company, acknowledging its ability to sustain net new asset growth within the historical range of 5-7%.
TD Cowen and Deutsche Bank (ETR:DBKGn) maintained a Buy rating on Charles Schwab's stock, but both firms adjusted their price targets downward due to less favorable financial guidance than anticipated. TD Cowen's new price target is $88, down from $92, and the firm also revised its estimated adjusted EPS for 2024 through 2026.
Charles Schwab also stood out in the Federal Reserve's annual stress test, reporting the highest capital ratio of 25.2% under a severe stress scenario. This indicates the company's robust financial health, even in the face of potential economic downturns. These recent developments highlight the ongoing discussions around Charles Schwab's growth opportunities and financial stability.
InvestingPro Insights
As Charles Schwab Corp. (NYSE: SCHW) faces a revised outlook from Morgan Stanley, real-time data from InvestingPro provides additional context for investors. The company's market capitalization stands at a robust $136.44 billion, reflecting its significant presence in the asset and wealth management sector.
Despite the challenges noted by analysts, Charles Schwab has a Price/Earnings (P/E) Ratio of 31.02, suggesting a premium valuation in the market, which aligns with the "high earnings multiple" noted in InvestingPro Tips. Moreover, the company has a track record of consistent dividend payments, having maintained them for 36 consecutive years, offering some reassurance to income-focused investors.
InvestingPro Tips highlight that Charles Schwab is trading at a high Price/Book multiple of 4.11 and that short-term obligations exceed its liquid assets, which could be a point of concern for the company's liquidity management. Still, analysts predict the company will remain profitable this year, supported by a solid gross profit margin of 96.62% over the last twelve months as of Q1 2024.
For investors seeking a more comprehensive analysis, there are additional InvestingPro Tips available that could shed light on Charles Schwab's financial health and market position. Use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription for access to these insights. With these tools at their disposal, investors can better navigate the evolving financial landscape and make informed decisions regarding Charles Schwab's stock.
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