2024-03-23 10:14:29 ET
Summary
- In late December 2023, I upgraded Charles Schwab stock from Sell to Hold due to expected benefits from 2024's rate cuts.
- I am now further upgrading SCHW shares, anticipating strong earnings from the growing bull market in equities and other assets.
- As early indicators suggest, Schwab is poised to increase earnings over the next few quarters due to bullish trading volumes and higher margin balances.
- Given improved commercial dynamics, I am updating my valuation model anchored on earnings through 2026, setting a new fair share price at $75.
In late December 2023, I upgraded Charles Schwab (SCHW) stock from Sell to Hold, arguing that the U.S. brokerage firm is likely a key beneficiary of the 2024 expected rate cuts. Today I give SCHW shares another upgrade, as my latest view on the brokerage market suggests strong earnings upside thanks to the emerging bull market in equities, crypto and other tradeable asset classes. In fact, I argue that vibrant markets will inevitably lead to higher margin balances and trade volumes, which will compound the NIM-implied earnings tailwind from still-elevated rates over the next 12-24 months. This overall positive view on Charles Schwab is supported by robust February metrics, pointing to healthy, and accelerating commercial activity for the brokerage firm. Against the backdrop of positive and increasing commercial dynamics for Charles Schwab, I have revised my earnings per share forecasts for the company up to the year 2026; consequently, I now calculate a fair implied share price equal to $75....
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Charles Schwab: The Bull Market Could Supercharge Earnings