Redburn-Atlantic upgrades Charles Schwab stock, raises price target

Redburn-Atlantic upgraded Charles Schwab (SCHW) to Neutral from Sell, raising the price target to $82 from $65, citing easing cash sweep pressures and a rerating of the stock. The upgrade comes amid strong year-to-date performance (20% return) and positive financial indicators, including a perfect Piotroski Score of 9. Other firms including TD Cowen and Goldman Sachs have also recently upgraded SCHW with higher price targets, citing strong growth and balance sheet strategies, though Redburn-Atlantic analysts caution about the sustainability of the cash sorting recovery and potential impacts from business model changes, with EPS estimates below consensus for 2025-2027.

Analysis

Charles Schwab Corp. (SCHW) has received an upgraded rating from Redburn-Atlantic to Neutral from Sell, with an increased price target to $82 from $65, reflecting an improved assessment of its position in the U.S. retail wealth management market. This upgrade is attributed to easing pressure from cash sweep issues, enabling Schwab to reduce high-cost funding, which has contributed to a significant stock rerating from approximately 12 times next twelve months' price-to-earnings in 2023 to around 19 times currently. The stock has demonstrated strong performance, with a 20% year-to-date return and trading near its 52-week high, supported by robust financial health indicated by a perfect Piotroski Score of 9, a market capitalization of $160 billion, nearly 11% consistent revenue growth, and 37 consecutive years of dividend payments. Further positive sentiment comes from other analysts, with TD Cowen raising its price target to $113 (Buy rating) and Goldman Sachs upgrading the stock to Buy with a $100 price target, both citing strong growth and balance sheet strategies. Recent company reports also show positive momentum, with client assets reaching $9.89 trillion in April 2025 (a 12% year-over-year increase), 439,000 new brokerage accounts opened (a 22% increase from April 2024), and a 14% month-over-month rise in daily average trades. Despite these positive developments and InvestingPro's Fair Value assessment indicating the stock is trading at fair value levels, Redburn-Atlantic expresses caution regarding the sustainability of the cash sorting recovery and notes its earnings per share estimates for 2025-2027 are about 5% below consensus. Potential changes to Schwab's business model, such as reducing duration and shrinking the bank, are also highlighted as factors that could impact future earnings power, even as current issues are deemed less severe than previously.

Key Decisions for Investors

• Investors should acknowledge the positive momentum underscored by multiple analyst upgrades and strong operational metrics, but also consider the stock's current valuation near its 52-week high and InvestingPro's fair value assessment.
• Monitor developments related to cash sorting trends and Schwab's management of its funding costs closely, as Redburn-Atlantic highlights these as potential risks to sustained recovery despite recent improvements.
• Evaluate the divergence in earnings expectations, particularly Redburn-Atlantic's below-consensus EPS estimates for 2025-2027 and potential impacts from strategic business model adjustments, when assessing long-term growth prospects.