Schwab's stock looks to thrive from wealth management growth, analyst says

By Steve Gelsi

Analyst sees growth ahead despite downside surprises on expenses and client cash trends

UBS analyst Brennan Hawken on Thursday raised his price target for Charles Schwab Corp. on the financial service firm's growth prospects and untapped cost savings from its acquisition of TD Ameritrade.

Looking past recent weakness in the Schwab (SCHW) stock tied to cash moves by clients and a bump up in expenses, Hawken reiterated a buy rating and increased his price target to $91 a share from $87 a share, following the company's investor day.

Schwab's stock moved up fractionally in premarket trading on Thursday, after losing about 4.5% of its value in the previous session.

Schwab projected a 2% decline in May transaction sweep cash balances as customers moved money into higher interest-bearing accounts weighed on the stock, Hawken said.

It also projected an adjusted 2% rise in 2024 expenses, which was higher than the flat reading that Wall Street had been expecting, he said.

Despite factors that weighed on the stock, Schwab still has about $375 million of expected cost savings ahead of it from its acquisition of TD Ameritrade, UBS noted, adding that the rise in expenses is also largely due to one-time items.

Read more: Robinhood says it picked up new customers since last group of TD Ameritrade users moved to Charles Schwab

With its Ameritrade integration now done, Schwab is focused on growth in its bank lending, and increasing the reach of its wealth-management products, Hawken said.

"SCHW sees substantial opportunity to deepen its lending solutionsplatform," Hawken said.

One product is called PAL, which stands for pledged asset line. It includes a line of credit for customers to borrow against their non-retirement assets.

"With the cash sorting headwinds largely diminishing, we have greater conviction in SCHW's organic growth profile and management's ability to achieve its operating targets," Hawken said.

Prior to Thursday's trades, Schwab's stock had risen by 9.4% in 2024, compared to an 11.3% jump by the S&P 500 SPX.

-Steve Gelsi

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05-23-24 0919ET

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