Morgan Stanley Maintains $68 Target for Charles Schwab Amid Deposit Growth

Morgan Stanley has decided to keep its Equalweight rating on Charles Schwab Corp. (NYSE: SCHW), holding firm on a price target of $68.00. This decision comes on the heels of a notable increase in sweep deposits for the company, which grew by $17 billion, or 4.7%, compared to the previous month in September. This growth is particularly significant after several months where the company experienced continuous deposit withdrawals.

The increase in deposits has led analysts to ponder whether this growth will be sustainable in the future. There are worries that these deposits might be reallocated or withdrawn in October, but Morgan Stanley has positively adjusted its earnings per share (EPS) forecast for Charles Schwab in the fourth quarter. Furthermore, the firm took note of the brokerage’s revised guidance for net interest margin (NIM) for 2025, as well as an expense outlook that remains consistent with what was anticipated.

This assessment from Morgan Stanley is significant as it follows a period where Schwab witnessed persistent outflows. The change to positive inflows in September signifies a possible turnaround in the company’s deposit situation.

Investors are now closely monitoring the future performance of Charles Schwab, particularly interested in whether the recent gains in deposits are simply temporary or if they signify a more stable, long-term trend. Morgan Stanley's commentary indicates a cautious stance regarding the durability of Schwab's deposit growth and overall financial performance projections.

The current evaluation by Morgan Stanley does not indicate any changes to the current rating or price target for Charles Schwab's stock. The firm’s reiteration of its position comes as the market and investors consider various elements that could affect Schwab’s financial path going forward.

In recent developments, Charles Schwab Corporation reported a strong performance for the third quarter, exceeding forecasts with an earnings per share (EPS) of $0.77, in comparison to the analysts’ predictions of $0.75. This solid performance was backed by a revenue increase of 3.3% and an impressive adjusted pre-tax margin of 41.2%. Moreover, the company reported a significant rise in client assets, reaching a total of $9.74 trillion, and successfully opened 324,000 new brokerage accounts.

Various analysts have made updates to their outlooks on Schwab. JMP Securities, for instance, increased its price target to $84, driven by an impressive Q3 report. Meanwhile, Jefferies upheld a Buy rating but slightly adjusted its price target downwards to $73, and BofA Securities lowered its target from previous estimates to $63, maintaining an Underperform rating. Other firms, such as Deutsche Bank, Morgan Stanley, and Piper Sandler, have also made adjustments to their price targets for Schwab's stock.

In executive news, Schwab's CEO, Walt Bettinger, announced that he plans to retire at the end of 2024. Following his retirement, President Rick Wurster is set to take over in 2025. This transition is part of Schwab's long-term succession strategy aimed at ensuring stability and continuity for its clients, employees, and shareholders.

Insights from InvestingPro

To provide further context to Morgan Stanley's analysis, recent data shows that Charles Schwab's market capitalization is currently at $132.1 billion, indicating its substantial role in the financial services sector.

An important tip from InvestingPro reveals that Charles Schwab has consistently paid dividends for 36 consecutive years, which may appeal to income-focused investors looking for long-term stability. This history of reliable dividend payments complements the recent uptrend in sweep deposits noted by Morgan Stanley.

Another relevant tip highlights that 8 analysts have recently raised their earnings forecasts for the upcoming period. This upward revision aligns with Morgan Stanley's optimistic outlook for the company’s EPS in the fourth quarter.

Moreover, Schwab's current price-to-earnings (P/E) ratio of 29.95 indicates that the stock is trading at a relatively high earnings multiple, which investors should factor in, especially in light of the recent deposit growth and future earnings prospects discussed in this article.

For those interested in a more detailed evaluation, InvestingPro offers an additional 21 tips concerning Charles Schwab, enabling a deeper assessment of the company's financial state and market standing.

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Schwab, MorganStanley, Deposits