On Tuesday, Deutsche Bank adjusted its price target for Charles Schwab Corporation (NYSE:SCHW) shares, lowering it to $77 from the previous $80, while maintaining a Buy rating on the stock. The modification follows the release of Schwab's August metrics earlier in September and discussions with the company's investor relations team. The new target also factors in a lower short-term interest rate environment and other macroeconomic conditions.
The bank's analyst noted that despite revising earnings per share (EPS) estimates downward, the third-quarter EPS forecast remains steady at $0.75, matching the current consensus. The August metrics and investor relations commentary are seen as favorable indicators for an improved trajectory in net new asset growth and a trend toward deposit stabilization.
Management's expectations for net interest margin (NIM) for the years 2025 and 2026 were also addressed. The analyst anticipates that the incoming CFO, Mike Verdeschi, will present a lower NIM forecast during the third-quarter earnings call, influenced by the Federal Reserve's projected rate cuts. The updated NIM forecasts are now 2.50% for 2025, down from 2.75%, and 2.91% for 2026, down from 3.22%.
Previously, management had expected the NIM to exceed 3% by the end of 2025, assuming the paydown of high-cost borrowings. However, with the revised interest rate projections, the exit rate is expected to be closer to 2.75%, albeit with potential to reach a 3% NIM level over time.
The analyst suggests that investors are already preparing for a lower NIM forecast due to the reduced interest rate landscape. It is also expected that management will communicate this outlook rather than waiting for the usual 2025 outlook presented in the fourth-quarter business update in January.
Despite the lower NIM forecast, the analyst anticipates that management will maintain a positive outlook on the business, focusing on strong client organic growth and a plan to regrow deposit balances and pay down the majority of high-cost borrowings by the end of 2025.
In other recent news, Charles Schwab Corporation reported significant growth in client assets and new brokerage accounts for August 2024. The firm's core net new assets totaled $32.8 billion, a considerable increase from the same period last year. Total client assets reached $9.74 trillion, marking a 20% increase from August 2023. Additionally, the firm saw a 4% year-over-year increase in new brokerage accounts, with 324 thousand accounts opened in August.
The company has also been the subject of several analyst adjustments. Morgan Stanley reduced the company's stock price target from $71.00 to $70.00, maintaining an Equalweight rating due to lower-than-expected net interest margin and a decrease in interest-earning assets. Similarly, Piper Sandler downgraded Charles Schwab's stock from Overweight to Neutral, reducing the shares target to $64.
Despite these adjustments, Charles Schwab anticipates its third-quarter results to align with projections made during the July Business Update. The company expects total revenue growth to be between 2% to 3% compared to the previous quarter, with an adjusted pre-tax profit margin of at least 40%. These are among the recent developments involving Charles Schwab Corporation.
InvestingPro Insights
Recent data from InvestingPro underscores Charles Schwab Corporation's (NYSE:SCHW) financial position and market performance. With a market capitalization of $118.78 billion and a price-to-earnings (P/E) ratio of 26.92, the company's valuation reflects investor sentiment and market conditions as of the last twelve months ending Q2 2024. The adjusted P/E ratio for the same period stands at 24.5, indicating a slight variation when considering specific financial adjustments.
InvestingPro Tips highlight that Charles Schwab has maintained dividend payments for an impressive 36 consecutive years, illustrating a strong commitment to returning value to shareholders. This is a significant point for investors looking for stable income streams.
Moreover, analysts predict the company will remain profitable this year, aligning with the positive outlook presented by management regarding client growth and financial strategy. It's worth noting that there are more InvestingPro Tips available that could provide further insights into Schwab's performance and future prospects.
While the revenue has seen a decline of 12.02% over the last twelve months as of Q2 2024, the company has managed a gross profit margin of 96.7% in the same period, indicating high efficiency in its operations. The operating income margin of 36.73% also reflects a strong operational performance. These figures, combined with the company's ability to maintain profitability over the last twelve months, offer investors a comprehensive view of Schwab's financial health. For those seeking deeper analysis, additional InvestingPro Tips are available to explore.
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