Charles Schwab's Near-Term Hurdles Expected To Fade, Brighter 2024/2025 Horizon Anticipated: Analysts

Yesterday, Charles Schwab Corp SCHW reported a Q3 net revenue decline of 16% Y/Y to $4.61 billion, missing the consensus estimate of $4.63 billion. Adjusted EPS of $0.77 beat the analyst consensus of $0.75.

Analysts from JMP Securities, Keefe, Bruyette & Woods (KBW), and Raymond James gave their opinions of the results.

JMP Securities analyst Devin Ryan maintained a Market Outperform rating and a $77 price target.

The company’s outlook commentary was broadly consistent with the outlook it provided with second-quarter results, which the analyst views positively.

Consolidated and bank-adjusted Tier 1 leverage (adjusted for AOCI) increased to 4.1% and 4.4%, from 3.7% and 4%, respectively, with bank spot Tier 1 leverage at 4.6% at quarter end, regulatory consolidated Tier 1 leverage is already well above target at 8.2%, said the analyst.

The analyst appreciates that Schwab will remain a bit of a show-me story for some investors, given what remains a volatile interest rate backdrop, but despite some near-term challenges, the analyst agrees with management’s sentiment that a “higher for longer” scenario could actually be quite positive for Schwab over time.

KBW analyst maintained an Outperform rating and a $69 price target.

The analyst lowered forward EPS estimates, primarily to reflect lower NII estimates on slightly lower interest-earning asset assumptions as well as slightly higher deposit costs.

The analyst lowered the 2024 estimate to $3.48 (from $3.72) and the 2025 estimate to $4.70 (from $4.90). 

It seems that SCHW has reached an important level in terms of incremental sorting, noted the analyst.

Ongoing sweep cash declines are now fairly consistently (excluding August) right around the level of liquidity rolling off the securities portfolio, meaning that the company is not forced to put on much more short-term funding, noted the analyst.

Raymond James analyst maintained the Outperform rating, raising the price target from $72 to $76.

Analyst Patrick O’Shaughnessy said the Q3 results continued to show the effects of near-term headwinds from client cash sorting with revenues and EPS down versus the year-ago period. In addition, deal-related client attrition picked up in the quarter.

That said, both headwinds abated somewhat in September and should largely be in the rearview mirror by the end of 2023, noted the analyst.

The analyst expects a substantial rebound in EPS in 2024/2025 and anticipates Schwab’s P/E multiple moving higher as the bear cases lose steam.

Price Action: SCHW shares are trading higher by 0.36% at $53.92 on the last check Tuesday.