© Reuters. Charles Schwab (SCHW) upgraded at Goldman Sachs on under-appreciated earnings
By Sam Boughedda
Goldman Sachs analysts told investors in a note Wednesday that the firm has upgraded Charles Schwab (NYSE:) to Buy from Neutral on underappreciated and capital return opportunities.
The analysts moved the price target on Charles Schwab shares to $98 per share, telling investors they “expect the stock’s EPS CAGR to accelerate to >20% over the next two years (+15% in 2023, +32% in 2024), with sustainable tailwinds beyond that.”
“Although we see cash sorting/deposit outflows persisting into 1H23 (weighing on SCHW’s NII), our analysis suggests that deposits balances should trough by mid-2023, unlocking significant earnings power compounded by SCHW’s solid 6%-7% NNA growth amid (a) accelerating NII growth into 2024 and (b) significant excess capital generation with accelerating share repurchases and/or additional retirement of preferred,” writes the analysts.
Although Goldman Sachs believes the company’s 2023 consensus EPS still needs to adjust lower, it added that it expects the market to “look through it” as signs of deposit stabilization occur over the coming quarters.
“Our 2023/24/25 EPS estimates are $4.52/$5.95/$7.89 with 2024 EPS 6% above consensus. Our 12-month price target of $98 assumes 16.5X Q5-Q8 P/E (in line with SPX and SCHW’s historical multiple during periods of peaking rates),” the analysts added.
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