On Friday, Jefferies has adjusted its outlook on Charles Schwab Corp. (NYSE: NYSE:SCHW), reducing the price target to $73.00 from the previous $79.00 while maintaining a Buy rating on the stock. The revision reflects an updated third-quarter 2024 earnings estimate, which has been slightly increased from $0.74 to $0.75 per share. This change is attributed to an increase in net interest income (NII) and better-than-anticipated trading volumes.
The firm anticipates Charles Schwab's third-quarter net revenue to reach $4.82 billion, a 2.8% increase, aligning with the company's guidance of a 2-3% quarter-over-quarter growth. This expectation comes after a quick repricing of sweep deposits following the September 50 basis points rate cuts. Additionally, the analyst predicts an expansion in the company's balance sheet, forecasting a rise in total short-term funding due to an average investment earnings assets (IEA) of $420 billion in August, up from $417 billion in July.
Regarding the net interest margin (NIM), Jefferies now projects a NIM of 2.24% for the fourth quarter of 2024. This projection is based on the near-term boost from the recent deposit repricing, while a slower-than-anticipated reduction in short-term funding is expected to impact the fiscal year 2025's target NIM of 3%. The firm's model predicts a NIM of 2.63% at the end of FY25. The report also suggests potential benefits from the refinancing of existing Federal Home Loan Bank (FHLB) balances.
Trading volumes for Charles Schwab showed strength, with an average daily volume (ADV) of 5.7 million, surpassing the analyst's previous estimate of 5.4 million. Margin balances also saw an uptick, averaging approximately $73.5 million compared to $68.7 million in the last quarter. These figures are consistent with intra-quarter updates that indicated moderating deposit outflows in July and higher month-over-month deposit outflows coupled with solid organic growth in August.
In other recent news, Charles Schwab Corporation has experienced significant developments. BofA Securities recently downgraded the company's stock and revised its earnings per share (EPS) estimates for the years 2024 through 2026, citing lower interest rates and ongoing sorting activities. The company has also strategized to offset these impacts by reducing their cash sweep rate.
Charles Schwab's CEO, Walt Bettinger, is set to retire at the end of 2024, with President Rick Wurster taking over in 2025. Despite a reduced short-term interest rate environment affecting earnings estimates, the company anticipates third-quarter earnings per share to remain steady at $0.75.
Deutsche Bank (ETR:DBKGn), Morgan Stanley (NYSE:MS), and Piper Sandler have made adjustments to Schwab's stock targets, with Deutsche Bank maintaining a Buy rating. The corporation has also scheduled a Fall Business Update for institutional investors. These are recent developments in the ongoing story of Charles Schwab Corporation.
InvestingPro Insights
To complement Jefferies' analysis, recent data from InvestingPro provides additional context on Charles Schwab's financial position. The company's market capitalization stands at $115.98 billion, reflecting its significant presence in the financial services sector. Despite the recent price target reduction, Charles Schwab maintains a solid P/E ratio of 26.17, suggesting investors are still willing to pay a premium for its earnings.
An InvestingPro Tip highlights that Charles Schwab has maintained dividend payments for 36 consecutive years, underscoring its commitment to shareholder returns even in challenging market conditions. This consistency aligns with the company's robust gross profit margin of 96.7% for the last twelve months as of Q2 2024, indicating strong operational efficiency.
Another relevant InvestingPro Tip notes that analysts predict the company will be profitable this year, which supports Jefferies' positive outlook and Buy rating. This projection is further reinforced by Charles Schwab's operating income margin of 36.73% over the last twelve months, demonstrating its ability to generate substantial profits from its operations.
For investors seeking more comprehensive insights, InvestingPro offers additional tips and metrics to further evaluate Charles Schwab's financial health and market position.
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