Charles Schwab (NYSE:SCHW), commonly just known as Schwab, is experiencing some growing pains while the company transitions some new clients to its platform. On the other hand, a prominent analyst is preparing for Schwab to rebound during the next couple of years. All in all, I am bullish on SCHW stock and feel that there’s good value here for forward-thinking investors.
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Charles Schwab is a bank and investment broker that also offers advisory services. The company has been consistently profitable and even managed to post earnings beats in the first and second quarters of 2023.
As we’ll see, analysts generally expect SCHW stock to move higher in the coming months. As Schwab undergoes changes and rides out some rough patches, the company should continue to provide outstanding value to its loyal shareholders.
Charles Schwab: A Cheap Stock and a Bold Strategy
Earlier this year, the regional banking crisis sent a number of financial stocks lower. SCHW stock recovered somewhat but is still far below its 52-week high of $86.
The result is a fairly cheap stock that pays a decent dividend. Specifically, Charles Schwab has a trailing P/E ratio of 15.7x, which is higher than the sector median P/E but lower than the company’s five-year average P/E of 21.5x. Also, Schwab’s forward annual dividend yield of 1.75% provides a nice quarterly bonus that you can take to the bank.
Meanwhile, Schwab is implementing a strategy that, I believe, makes sense for the long term. In particular, Schwab has slashed the expense ratios (i.e., the annual management fees) on its bond-based ETFs to the point that all of Schwab’s bond ETFs have 0.03% expense ratios.
Is this a smart move? I believe so, as bond ETFs are in the gutter right now. High interest rates have pushed bond-based ETF prices very low, and Schwab is doing whatever it takes to spur interest in these funds.
Besides, these funds could prove to be highly lucrative for Schwab when an eventual interest rate cut occurs. To quote James Seyffart of Bloomberg Intelligence, “This is definitely a splash to get more assets and we know for a fact that assets will flow based on just a one basis point cut.”
Capture the Moment with Charles Schwab’s “Potential Rebound”
Charles Schwab survived the regional banking crisis of early 2023, but there’s another hurdle for the company to clear now. Schwab acquired TD Ameritrade in 2020 and is still transitioning the clients who were accustomed to using TD Ameritrade’s trading platform over to Schwab’s platform.
Suffice it to say, change and growth can be uncomfortable sometimes. Some former TD Ameritrade platform users aren’t happy with Schwab’s platform. Yet, even as Schwab continues to recover from early 2023’s outflow of funds (also known as “cash sorting”) and struggles to transition former TD Ameritrade customers, one analyst expects Schwab to stage a recovery.
Indeed, William Blair analyst Jeff Schmitt sounds outright bullish about Schwab’s future prospects. Now is a “good time to play the potential rebound as the risk/reward dynamic has shifted,” Blair declared.
Per Barron’s, Schmitt “expects Schwab’s cash sorting woes to abate because interest rates seem to be nearing a peak.” I concur with this argument, as a higher-for-longer interest rate policy won’t last forever. When interest rate cuts finally occur, there should be a mass migration from CDs (certificates of deposits) and money market funds back into brokerage accounts.
This and other contributing facts will, Schmitt predicts, “drive average EPS growth of 30% to 35% in 2024 and 2025” for Schwab. Prospective investors might choose to take action now, as the rebound that Schmitt anticipates “is not priced in yet as the stock continues to trade well below historical levels.”
Is SCHW Stock a Buy, According to Analysts?
On TipRanks, SCHW comes in as a Moderate Buy based on 12 Buys, two Holds, and one Sell rating assigned by analysts in the past three months. The average Charles Schwab price target is $74.36, implying 36.7% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell SCHW stock, the most profitable analyst covering the stock (on a one-year timeframe) is Stephen Biggar of Argus Research, with an average return of 22.03% per rating and a 64% success rate. Click on the image below to learn more.
Conclusion: Should You Consider SCHW Stock?
Analysts, including Schmitt, don’t expect Charles Schwab’s transitional phase to cause insurmountable problems for the company. Moreover, Schwab stock still trades at a depressed level, but the window of opportunity probably won’t last much longer.
Charles Schwab is making a smart move by keeping its bond-fund fees low. Plus, the company has survived prior crisis situations and should continue to demonstrate its resilience. Therefore, value and dividend seekers should definitely consider taking a position in SCHW stock.
