On Monday, Charles Schwab Corp. (NYSE: NYSE:SCHW) saw an increase in its stock price target from $85.00 to $88.00, while its stock rating was maintained at Buy by Jefferies. This adjustment comes despite a slight decrease in the firm's second-quarter earnings estimate, with the anticipated net revenue aligning with management's expectations.
The revised second-quarter 2024 earnings estimate by Jefferies is now set at $0.71 per share, a decrease from the previous $0.75 projection. The reduction is attributed to a combination of lower net interest income (NII) and increased expenses.
Jefferies forecasts a net revenue of $4.6 billion for Charles Schwab in the second quarter, marking a 1.4% decrease from the previous quarter, which is consistent with the company's guidance of a 1-2% quarter-over-quarter decline.
The report also highlighted that the Federal Home Loan Bank (FHLB) paydowns are expected to decelerate in the second quarter compared to the first, due to the ongoing decrease in cash levels. Despite the decline in cash, Charles Schwab's margin loans remained high, with May's average margin balance reported at $67.6 billion, slightly up from $66.4 billion in March.
The analyst noted that Charles Schwab's management is likely to keep a higher balance of short-term funding to support margin lending, as it continues to be beneficial for net interest income. The expectation is that the cash levels will keep falling in June, but at a slower rate than what was observed in April and May.
In other recent news, Charles Schwab Corporation has seen a flurry of analyst activity. Keefe, Bruyette & Woods upgraded the stock from Market Perform to Outperform, raising the price target to $84.00. This shift in expectations is attributed to the anticipated Federal Reserve rate cuts, which could positively impact Schwab's sweep cash. Despite some challenges, the firm's consensus earnings per share (EPS) for 2026 is estimated to be slightly below the FactSet and Visible Alpha consensus.
In contrast, TD Cowen maintained a Buy rating but adjusted the stock's price target downward due to less favorable financial guidance than anticipated. Barclays also held its Equalweight rating, recognizing the company's confidence in sustaining net new asset growth within the historical range of 5-7%, but noted some near-term challenges.
In the annual Federal Reserve stress test, Charles Schwab reported the highest capital ratio of 25.2% under the severe stress scenario, indicating its financial stability. Meanwhile, the company has seen significant net inflows into its purchased money funds, suggesting a stable trend in asset management. These are recent developments that investors should consider in their analysis of the company's prospects.
InvestingPro Insights
As investors digest the latest analysis from Jefferies on Charles Schwab Corp., real-time data from InvestingPro can provide additional context. Charles Schwab is currently trading at a high earnings multiple, with a P/E Ratio of 30.68 and an adjusted P/E Ratio for the last twelve months as of Q1 2024 at 27.26. The company is also trading at a high Price / Book multiple of 4.04.
Despite a revenue decline of 12.98% over the last twelve months, Charles Schwab has demonstrated a strong Gross Profit Margin of 96.62%, underscoring efficient management of its cost of goods sold.
InvestingPro Tips suggest that while Charles Schwab's short-term obligations exceed its liquid assets, the company has a track record of maintaining dividend payments for 36 consecutive years, which may be attractive to income-focused investors. Moreover, analysts predict profitability for the company this year.
For those looking to delve deeper into Charles Schwab's financials and future prospects, InvestingPro offers further tips and metrics. Use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, and gain access to the full list of valuable insights that InvestingPro has to offer.
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