On Wednesday, Barclays updated its outlook on Charles Schwab Corp. (NYSE: NYSE:SCHW), raising its price target to $74.00 from the previous $64.00, while maintaining an Equal-weight rating on the stock.
The adjustment follows Charles Schwab's revenue performance, which surpassed Wall Street's estimates by 1% due to increased bank deposit account (BDA) and asset management fees. The company's adjusted operating expenses were in line with expectations, and its adjusted earnings per share (EPS) of $0.77 exceeded the consensus by 3%.
A significant highlight from Charles Schwab's recent performance is the substantial growth in cash balances, which saw an increase of $17 billion month-over-month and $9 billion quarter-over-quarter. This increase is attributed to the normalization of cash-sorting behavior among clients.
The growth in cash balances also contributed to a reduction in Federal Home Loan Bank (FHLB) advances by $1.8 billion for the quarter and a decrease in certificate of deposit (CD) balances by $4.4 billion month-over-month.
Despite fluctuations in monthly cash balances, which management described as "noisy," the September surge was credited to both organic momentum within the business and some monthly variances.
Additionally, while the total net new assets (NNA) growth rate remains below the historical 5-7% range, management indicated that NNA growth from legacy Schwab customers is still within this range, and NNAs from Ameliorate, a recent acquisition, are showing positive aggregate growth.
Looking ahead, Charles Schwab's management has provided guidance for the fourth quarter EPS, now expected to be in the upper $0.80s range, and anticipates fiscal year 2024 revenues to increase by 2-3% year-over-year. However, the firm has adjusted its fiscal year 2025 net interest margin (NIM) forecast to be modestly below the previously targeted "approaching 3%" mark.
In other recent news, Charles Schwab Corporation reported a strong third quarter for 2024, with a 5% year-over-year increase in revenue to $4.8 billion and adjusted earnings per share reaching $0.77. The company's supplemental funding was reduced by $9 billion, bringing the balance beneath $65 billion, while 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. In the coming 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.
This news follows the announcement of CEO Walt Bettinger's departure and the incoming CEO Rick Wurster, who will assume the role in January 2024.
InvestingPro Insights
Charles Schwab's recent performance and Barclays' updated outlook are further complemented by real-time data from InvestingPro. The company's market capitalization stands at $131.64 billion, reflecting its significant presence in the financial services sector. With a P/E ratio of 29.95, investors are showing confidence in Schwab's earnings potential, which aligns with the company's recent revenue outperformance.
InvestingPro Tips highlight that Charles Schwab has maintained dividend payments for 36 consecutive years, demonstrating a commitment to shareholder returns that may appeal to income-focused investors. This track record is particularly noteworthy given the recent market volatility and the challenges faced by the financial sector.
Additionally, InvestingPro data shows a strong return over the last month, with a 12.98% price total return. This recent performance could be attributed to the positive revenue surprise and the growth in cash balances mentioned in the article. The stock's current price is 90.53% of its 52-week high, suggesting potential room for growth if the company continues to exceed expectations.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for Charles Schwab, providing a deeper insight into the company's financial health and market position.
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