Raymond James thinks Charles Schwab ‘s core business remains healthy despite concerns about the volatility in the banking system. Analyst Patrick O’Shaughnessy upgraded the brokerage to outperform from market perform. His price target of $63 implies shares could gain 28.7% from Friday’s close. Schwab’s “core franchise [is] still healthy,” the analyst wrote in a Monday note to clients. “Importantly, concerns about the stability of the banking system have not impaired Schwab’s ability to attract new accounts and assets. In fact, net new accounts grew at a 4.3% annualized pace in 1Q23 while core net new assets grew at a 7.5% pace.” To be sure, he noted that elevated cash sorting “is a stark reminder of the interest rate risk inherent within Schwab’s business model.” However, he added that signs of client cash sorting seeming to taper at Schwab should also support balance sheet and net interest margin stabilization in the latter half of 2023. “The company has very little credit risk and an attractive core growth story that was unaffected by recent macro events, which we believe can lead to P/E multiple re-rating once EPS estimates stabilize,” O’Shaughnessy continued. “While the specter of a stricter regulatory regime may be an overhang for some time, we think the incremental risk to Schwab’s earnings power is likely to be somewhat limited.” The stock gained 2.1% during premarket trading Monday. Shares are down more than 41% in 2023. “The company remains a unique, well-positioned secular growth story and the cash sorting headwinds to EPS (significant as they might be) should be largely gone by 2025,” O’Shaughnessy said. —CNBC’s Michael Bloom contributed to this report.
