Market Overview

Citi Downgrades Charles Schwab On Valuation Concerns

Share:
Citi Downgrades Charles Schwab On Valuation Concerns
Related SCHW
Acorns Co-Founders Kick Off 2018 Benzinga Fintech Summit
Inside The Battle For ETF Supremacy
Schwab October new brokerage accounts rise 12% M/M (Seeking Alpha)

There may not be anything wrong with Charles Schwab Corp (NYSE: SCHW)’s business, but one Wall Street analyst says there’s plenty wrong with the stock’s current share price.

The Analyst

Citi analyst William Katz downgraded Charles Schwab from Neutral to Sell and lowered his price target for the stock from $60 to $49.

The Thesis

According to Katz, there’re are four key reasons Citi has lost confidence in Schwab:

  • 1. The firm is predicting EPS growth deceleration and rising execution risks through 2020.
  • 2. Citi anticipates an unfavorable mix shift, leaving Schwab to depend almost entirely on net interest income to drive earnings growth.
  • 3. Once earnings growth drivers start to fade, the stock may experience earnings multiple compression.
  • 4. Rising costs, greater EPS variability and potential price cuts will pressure revenue.

Citi lowered its 2018 to 2020 EPS targets and is now in-line with consensus estimates. Katz said he doesn’t expect Schwab to hit the $3.00 EPS mark until 2020.

“As EPS normalize and the delta around earnings lift comes solely from spread-based revenues, we expect investors to rethink the valuation construct unfavorably,” Katz wrote in the downgrade note. He said his prediction that investors will begin to question the stock’s valuation may be early, but it will certainly come at some point.

Katz says he prefers brokerage peers LPL Financial Holdings Inc (NASDAQ: LPL) and TD Ameritrade Holding Corp (NASDAQ: AMTD) to Schwab stock.

Price Action

Charles Schwab stock traded down by 0.7 percent Wednesday, but remains up 31 percent in the past year.

Related Links:

Schwab Expands Commission-Free ETF Lineup

A New Combatant In The Online Brokerage Price Wars: Overstock To Offer $1.99 Trades

Image Credit: Djkeddie (Own work) [CC BY-SA 4.0], via Wikimedia Commons

Latest Ratings for SCHW

DateFirmActionFromTo
Nov 2018Morgan StanleyMaintainsOverweightOverweight
Oct 2018Deutsche BankUpgradesHoldBuy
Oct 2018Raymond JamesUpgradesMarket PerformOutperform

View More Analyst Ratings for SCHW
View the Latest Analyst Ratings

Posted-In: Citi William KatzAnalyst Color Downgrades Price Target Top Stories Analyst Ratings Best of Benzinga

 

Related Articles (AMTD + LPL)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
AMTDMorgan StanleyUpgrades65.0
APOMorgan StanleyDowngrades34.0
ARMKBairdUpgrades44.0
CGMorgan StanleyDowngrades23.0
EIXEdward JonesDowngrades0.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

Ripple Penetrates Chinese Market Through LianLian

Quantxt Uses AI To Power Unstructured Data Processing