Charles Schwab’s Strong Performance Beats Expectations
On Monday, stocks of Charles Schwab (NYSE: SCHW) exceeded analysts’ expectations for adjusted earnings and earnings per share, following the company’s impressive second-quarter results reported last Friday.
Analysts from prominent Wall Street firms, including JP Morgan and Goldman Sachs, have praised Schwab’s robust performance. They attribute this success to strategic growth initiatives such as stock valuations, updated price forecasts, solid fundamentals, increased trading activity, and the anticipated launch of Bitcoin and Ethereum trading services.
On Friday, Schwab announced adjusted earnings of $1.14 per share, which was higher than the $1.07 forecasted by analysts. The company reported quarterly revenue of $5.855 billion, marking a 25% year-over-year increase, surpassing the expected $5.655 billion.
At the end of the second quarter, Schwab held $32.2 billion in cash equivalents, while total deposits reached $233.1 billion—a decline of 8% compared to the previous year.
JP Morgan’s analyst Kenneth B. Worthington maintained an Overweight rating on Schwab, adjusting his price target from $100 to $117. He emphasized the strong performance in the second quarter, noting a surge in trading activity, better-than-expected net interest income (NII), and ongoing market volatility.
Worthington pointed out that Schwab achieved net revenue of $5.9 billion with a pre-tax margin of 50.1%, surpassing forecasts. Transaction revenue reached $952 million, showing growth from both the previous quarter and the same period last year. He believes that favorable NII factors are linked to a decrease in short-term debt and increased securities lending.
Furthermore, analysts see Schwab’s net new assets (NNA) worth $80 billion as strong, projecting an annual growth rate of 4.9% by the end of the quarter. Notably, contributions from Legacy Ameritrade clients have significantly improved, with that segment’s NNAs doubling each year.
Even with a slight quarterly dip in interest assets, Worthington expects growth to resume in the second half of 2025 as Schwab reduces supplemental bank funds. He observed that client transaction sweep cash rose to $412 billion in June, indicating stable customer engagement.
Worthington welcomed Schwab’s revised outlook for 2025, increasing revenue growth to 19% and predicting an adjusted EPS of $2.60. Despite the stock nearing an all-time high, he remains positive about the business momentum and financial flexibility for 2026. He estimates net revenue for fiscal year 2025 will be $23.5 billion with an adjusted EPS of $4.62.
Goldman Sachs analyst Alexander Brostein also rated Charles Schwab favorably, raising his price target from $103 to $110. He has upped his EPS estimates for 2025 to 2027, forecasting figures of $4.69, $5.30, and $6.52 respectively, which are roughly 4% above consensus estimates.
Despite the stock’s impressive performance this year, Brostein highlighted that there’s still room for growth, underlining several factors that could support accelerated EPS growth. By late 2025, he noted potential expansions in transaction cash balance and reduced supplemental borrowings. Additionally, Schwab’s recent interest rate hedging has lessened its vulnerability to short-term stock fluctuations.
The introduction of new products, like crypto trading and expanded alternatives, is also contributing positively to the outlook. Brostein anticipates that the ongoing integration of these initiatives alongside Legacy Ameritrade clients will enhance organic NNA growth into the firm’s long-term targets of 5-7%.
After observing a core organic growth rate of 4.9% in the second quarter of June, analysts feel confident about Schwab maintaining this momentum. Brostein has also updated his NII estimates for 2025, factoring in the $412 billion transaction cash recorded in June.
He anticipates significant NIM growth for Schwab, projecting figures of 270 bps in 2025, 283 bps in 2026, and 306 bps in 2027.
Additionally, Brostein mentioned that capital return will serve as another key driver moving forward. With Schwab raising its tier 1 leverage ratio to 7.2% and repurchasing $350 million worth of stock in June, analysts expect revenue growth and share buybacks to gain momentum as other comprehensive incomes accumulate.
Overall, Brostein maintains a bullish perspective, projecting a 25% EPS CAGR until 2027, citing the firm’s strong foundation, expanded offerings, and increased capital flexibility as essential long-term investment drivers.
As for the adjusted EPS forecast, Brostein anticipates $23.5 billion in revenue (up from $23.4 billion) and $4.69 in adjusted EPS (up from $4.61) for 2025.
SCHW Price Action: On Monday, Charles Schwab’s shares were trading at $96.84, reflecting a 1.08% increase at the start of trading.
