On Wednesday, Goldman Sachs (NYSE:GS) maintained a Neutral rating on Charles Schwab Corporation (NYSE:SCHW) shares with a consistent price target of $74.00. The decision follows a review of the company's third-quarter financial results for 2024, which led to an adjustment in estimates due to slightly higher sweep deposit balances and recent forward interest rates.
Charles Schwab's September balances saw a temporary increase, attributed to seasonal selling, which has not yet been reinvested, potentially posing a challenge for October. The company also experienced organic cash growth from net new assets (NNA). Despite withdrawing the 3% net interest margin (NIM) guidance for the end of 2025, management remains positive about NIM improvements aligned with the current interest rate curve.
The company has not provided detailed projections for 2025 but indicated that the negative impact of the AMTD deal on NNA should diminish. Moreover, Charles Schwab introduced a preliminary expense growth forecast in the mid-single digits for 2025, which may be slightly above the consensus of financial analysts.
Goldman Sachs noted the likelihood of a decrease in October sweep balances but acknowledged the potential positive reception from investors if sweep deposits continue to stabilize. The firm also highlighted the sensitivity of Charles Schwab's earnings per share to deposit balances, suggesting that this could affect investor confidence in the stock's growth potential.
Charles Schwab's stock valuation is currently at 19.7 times the projected earnings for 2025 and 15.3 times for 2026. Goldman Sachs believes that the risk/reward profile for the company is balanced, considering these figures.
In other recent news, Charles Schwab Corporation reported strong third quarter results for 2024, with a 5% year-over-year increase in revenue to $4.8 billion and adjusted earnings per share of $0.77. The company has reduced its supplemental funding by $9 billion, and the adjusted Tier 1 Leverage ratio improved to 6.7%. Net new assets more than doubled compared to the same quarter last year, signaling robust client engagement.
Citi and Barclays (LON:BARC) have revised their price targets for Charles Schwab, with Citi raising it to $75 from $72 and Barclays to $74 from $64, both firms maintaining a neutral stance on the stock. These adjustments follow the company's recent financial performance and strategic advancements, including a notable increase in cash balances and reduction in Federal Home Loan Bank advances.
In the wake of these developments, Schwab anticipates a 2-3% revenue growth for the entirety of 2024 and plans to launch new retail alternatives in the fourth quarter. However, the company has adjusted its expectations for net interest margin by the end of 2025 due to potential macroeconomic uncertainties. Lastly, CEO Walt Bettinger will be departing, with Rick Wurster set to assume the role in January 2024.
InvestingPro Insights
Recent data from InvestingPro offers additional context to Goldman Sachs' analysis of Charles Schwab Corporation (NYSE:SCHW). The company's market capitalization stands at $131.64 billion, with a P/E ratio of 29.95, reflecting investor expectations for future growth.
InvestingPro Tips highlight that Charles Schwab has maintained dividend payments for 36 consecutive years, demonstrating a commitment to shareholder returns that aligns with the company's stable financial position discussed in the article. This consistency may provide some reassurance to investors amid the challenges noted by Goldman Sachs.
Another InvestingPro Tip indicates that 8 analysts have revised their earnings upwards for the upcoming period. This positive sentiment from analysts could potentially support Goldman Sachs' balanced view on the stock's risk/reward profile.
It is worth noting that Charles Schwab's revenue for the last twelve months as of Q2 2024 was $18.4 billion, with a revenue growth of -12.02% over the same period. This decline in revenue growth may be a factor in Goldman Sachs' cautious Neutral rating, despite the company's profitability over the last twelve months.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and insights that could further inform investment decisions regarding Charles Schwab Corporation.
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