Charles Schwab's 'Transition Year': Analysts Break Down Q4 Earnings Beat

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Charles Schwab Corp (NYSE: SCHW) shares closed higher on Wednesday, Jan. 17, after the company reported better-than-expected fourth-quarter earnings.

Adjusted EPS fell from $1.07 to 68 cents, beating the consensus of 64 cents, according to data from Benzinga Pro.

The results came amid an exciting earnings season. Here are some key analyst takeaways from the earnings release.

  • JMP Securities analyst Devin Ryan reiterated a Market Outperform rating and a price target $77.
  • Keefe, Bruyette & Woods analyst Kyle Voigt downgraded the stock from Outperform to Market Outperform rating. Price target for the stock was also lowered from $75 to $70.
JMP Securities: Charles Schwab's Q4 results, including a $172 million FDIC charge, had the expected noise, Ryan said. He lauded the strong December metrics, NNA rate of 6.3%, and growing cash in the business. Management's near-term guidance seemed slightly conservative, more a timing issue than a reflection of long-term earnings.

Despite stabilizing cash dynamics, "the company is in the process of repositioning the balance sheet, which is the biggest aspect of complication in the model as the firm moves through the 2024 transition year," Ryan noted.

The capital position has rebounded well, indicating potential for Schwab to reinstate the share repurchase program by the end of 2024.

Keefe, Bruyette & Woods: "2024 a "Transition Year"; long-term thesis unchanged," said the report.

Voigt reiterated that the outlook for Charles Schwab appears positive over the long term. He anticipates tailwinds from cash troughing, resumption of repurchases, and substantial back-book repricing. However, these catalysts are expected to unfold gradually, mostly in 2025.

Short-term funding repayment in 2024 may result in residual short-term funding through 1H25. Despite near-term caution due to additional seasonality around tax season, Schwab's competitive positioning in asset gathering and secular tailwinds in asset flows are considered strong.

The ongoing "cash sorting" phase is nearing its conclusion, with potential challenges in the short term. Nonetheless, Schwab is poised to benefit from significant NIM expansion once completed.