Goldman Sachs Adds Charles Schwab To Conviction List As Retail Trading Frenzy Continues

Shares of Charles Schwab Corporation SCHW traded higher on Monday after a Wall Street analyst added the stock to his Conviction Buy list.

The Analyst: Goldman Sachs analyst Will Nance added Buy-rated Charles Schwab to Goldman’s Conviction List and raised his price target from $67 to $77.

The Thesis: In the new note, Nance said retail investor market engagement has surprisingly increased so far in 2021.

The interest rate environment has also improved significantly, supporting net interest margins. Goldman Sachs is currently forecasting two interest rate hikes in 2022, which will further improve Schwab’s potential earnings power.

“On the back of the considerable momentum for fundamentals, we are adding SCHW to the Conviction List, as the stock has lagged considerable improvements in reinvestment rates, and this combined with robust balance sheet growth is likely to continue to propel forward estimates and the stock in our view,” Nance said.

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Goldman is calling for first-quarter adjusted EPS of 78 cents, slightly ahead of consensus analyst estimates of 74 cents.

Given short-term interest rates remain near zero and Schwab has underperformed relative to the improving environment so far in 2021, Nance said that Schwab could see significant near-term upside as the stock re-rates toward the higher end of its historical valuation range.

For now, the biggest risk for broker stock investors is the “inevitable decline” in retail trading activity, Nance said.

Nance is also calling for 94 cents in first-quarter EPS from Neutral-rated Interactive Brokers Group, Inc. IBKR, ahead of consensus estimates of 72 cents.

Benzinga’s Take: The frenzy of retail trading activity driven by a booming stock market and a global pandemic has created a near-perfect storm for brokers. Additional upside will likely hinge on retail traders maintaining their enthusiasm for stock trading once the economy starts to open back up and the potential for further upside in interest rates.

(Photo: Charles Schwab)