On Monday, Charles Schwab (NYSE: SCHW) shares plunged again, falling more than 20% as markets reacted to the aftermath of the SVB crash. However, analysts at Citi upgraded SCHW from Neutral to Buy in a note. The analysts lowered their price target for the stock to $75 from $83 but said the stock’s setback offered an “attractive entry point.”
Last Wednesday, shares of Charles Schwab closed at $76.20 but are now trading at about $47 a share, having fallen sharply after the SVB news.
“After a 23 per cent decline over the past two trading days, we see an attractive risk/reward ratio at current levels,” the experts write. “In the short term, we see a negative impact on revenue/earnings from rising funding costs and the ongoing reallocation of customer funds, but we believe this is reflected in the current share price.”
They added that while the redeployment of customer funds is a “stressor,” and they expect the magnitude to be higher than in previous cycles, they “do not see material risk to deposits leaving SCHW given the composition of the deposit base and customer protection.”
“SCHW trades at 15x/11x our 2023/2024 EPS, a discount of more than 30 per cent to historical averages. Given SCHW’s long-term track record of healthy asset/return growth and opportunities for margin expansion in 2024/2025 given current investment levels, we view current valuation levels as an attractive entry point,” analysts said.
