By Andrew Welsch

Analysts at Goldman Sachs upgraded Charles Schwab's stock to Buy from Neutral, citing the company's healthy balance sheet and strong growth in "an environment that remains highly uncertain."

Goldman analysts led by Alexander Blostein set a price target of $100, implying about 25% upside from the current stock price of $80.37 as of Friday afternoon. Shares of Schwab were up 1.23% Friday and 8.6% so far this year. That compares with the S&P 500's 0.45% gain on Friday and decline of 6.33% this year.

Blostein points to three reasons for upgrading Schwab's stock. First, the company has been paying off short-term debt it accumulated in recent years. That should help accelerate net interest income, a key source of revenue at Schwab. Second, it is building excess capital, which could lead it to resume significant share repurchases, Blostein writes. And thirdly, Schwab is showing signs of durable organic growth, putting it back within Schwab's target range of 5% to 7%.

Blostein's updated his earnings per share estimates for 2025, 2026, and 2027 to$4.44, $5.03, and $6.29, respectively. That puts him above consensus for 2025 and 2027 by 4% and 7%, respectively.

He isn't the only analyst to endorse Schwab's stock. Earlier this month, Morgan Stanley analyst Michael Cyprys upgraded shares of Charles Schwab to Overweight. Pointing to recent market upheaval, Cyprus said he was shifting his preferences "towards names less levered to retail trading, and more geared to defensive and durable growth."

Schwab's stock was battered in 2023 on concerns about what's known as cash sorting among customers and attrition of TD Ameritrade clients and advisors. Cash sorting is a process by which customers move money from low-paying sweep accounts to higher paying options such as money-market funds and certificates of deposit. Those options are less profitable for Schwab. Also, while customers' money wasn't leaving the company, Schwab had to rely on short-term borrowings when deposit outflows exceeded its cash on hand. That weighed heavily on earnings. Cash levels have since stabilized and Schwab has made progress paying down its short-term debt.

Blostein writes that Schwab clients' cash allocations and sweep deposits have stabilized at about 4% of total client assets. "We have argued that this is the most critical point to the SCHW bull thesis that would spark meaningful unlocking of the firm's earnings power."

Its asset-gathering prowess also appears to have returned. For the first quarter, Schwab hauled in core net new assets of $137.7 billion, representing a 5.5% annualized growth rate, putting it within reach of its annual growth target. The company serves individual investors and independent financial advisors, two of the fastest-growing segments of the wealth management industry. It has nearly $10 trillion in assets.

Blostein says that Schwab may actually benefit from recent market volatility; the company has historically generated above-trend organic growth during market declines. "Longer term, we also expect a gradual improvement in attrition and tailwinds from wallet share gains of recently-transitioned [Ameritrade] clients to support organic growth," which he believes can return consistently to the 5% level by the end of 2025.

Write to Andrew Welsch at andrew.welsch@barrons.com

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April 25, 2025 14:34 ET (18:34 GMT)

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