On Wednesday, JPMorgan adjusted its outlook on Charles Schwab Corp. (NYSE: NYSE:SCHW), lowering the price target to $78 from the previous $82 while maintaining an Overweight rating on the stock.
The revision follows the company's second-quarter 2024 earnings report which posted an adjusted earnings per share (EPS) of $0.73. This figure aligns with the general expectations of JPMorgan and the Bloomberg consensus. The report noted a slight improvement in net interest income and adjusted expenses.
Despite these in-line headline results, the firm identified several areas of concern, such as the growth in net new assets and interest-earning assets, the continued reliance on short-term funding without significant paydowns, and ongoing issues with cash sorting.
Additionally, Charles Schwab's delay in potential share buyback activities and a strategic shift towards a smaller Schwab Bank has raised questions about management's conviction and ability to execute plans, which has put further pressure on the stock.
The second-quarter performance highlighted multiple sobering aspects, according to the analyst. Nonetheless, JPMorgan acknowledged that Charles Schwab's recovery path remains intact, with efforts underway that are expected to yield significant earnings benefits in 2025 and beyond.
The report also mentioned some positive takeaways from the earnings call, including the benefits of the Ameritrade transaction, such as cross-selling advice services and the recovery of net sales. Charles Schwab has also kept its medium-term targets for organic growth and net interest margin (NIM).
In light of the second-quarter earnings release, JPMorgan has revised its adjusted EPS estimate for 2025 downward to $4.57 from the previous $4.81, attributing this change to an increase in short-term borrowings during the quarter. The new December 2024 price target reflects these adjustments and the current assessment of the company's financial outlook.
In other recent news, Charles Schwab Corporation has reported noteworthy growth and a positive outlook in its latest earnings call.
The company's net new assets have surpassed $150 billion, with close to 1 million new brokerage accounts established. The wealth business of Schwab has also experienced a 56% year-over-year increase in net flows, now standing at $25 billion. The successful integration of Ameritrade clients was also highlighted, contributing to enhanced Promoter Scores and net asset inflows.
Furthermore, Schwab's executives have outlined plans to bolster lending capabilities and client experience, including digital enhancements. The company expects a rise in net interest margin to 3% by the end of 2025. Schwab also projects a return to robust revenue and earnings growth starting late 2024, with an anticipated annualized growth in net new assets between 5% to 7%.
Despite these positive developments, it's worth noting that regulatory accrual and FDIC surcharge have impacted earnings, and earnings are expected to be flat from Q2 to Q3. However, the company remains committed to its long-term strategy focusing on organic growth, with plans to leverage third-party banks for deposits.
InvestingPro Insights
As the financial landscape for Charles Schwab Corp. (NYSE: SCHW) evolves, insights from InvestingPro become particularly relevant. According to the latest metrics, the company's market capitalization stands strong at $123.27 billion, with a respectable P/E ratio of 31.28. It's noteworthy to mention that Charles Schwab has a history of maintaining dividend payments, having done so for 36 consecutive years, which speaks to its financial stability and commitment to shareholder returns.
InvestingPro Tips suggest caution as analysts have revised their earnings downwards for the upcoming period, reflecting concerns similar to those raised by JPMorgan. Additionally, the stock has experienced significant pressure recently, taking a notable hit over the last week. On the upside, analysts remain optimistic about the company's profitability in the coming year, which aligns with JPMorgan's view of a recovery path that could yield significant earnings benefits in 2025 and beyond.
For readers looking to delve deeper into the financial health and future prospects of Charles Schwab, InvestingPro offers additional tips. There are currently 4 more tips available that could provide further guidance. Interested readers can explore these tips by visiting https://www.investing.com/pro/SCHW. To enhance your InvestingPro experience, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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