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Charles Schwab's Balance Sheet Is The Big Story, JMP Says

JMP Securities reiterated its Market Outperform rating and $32 price target on Charles Schwab Corp SCHW 0.68% and continues to believe that "elevated balance sheet growth as the biggest story."

Charles Schwab reported in-line Q2 earnings, while revenue topped expectations. Further, Charles Schwab is hosting a business update on Friday.

"[W]e believe that balance sheet growth has been outpacing the Street's expectations, and will continue to in the back half of the year," analyst Devin Ryan wrote in a note.

Ryan noted that client assets recovered largely as expected while the net interest margin was resilient, although more of the interest rate pressure occurred late in the quarter.

The company increased its "bulk transfer" expectation for the second half of 2016 to $8 billion (from $6 billion previously) and Ryan said the company "should experience significant organic growth as well (we estimate potentially over $10 billion)."

Ryan expects further issuance of preferred shares and said the return on common equity could be quite positive, although "we suspect the stock would likely need to be higher for the company to move on that front."

The analyst said shares don't appropriately reflect the intermediate-term growth outlook or long-term earnings power.

"Our price target represents a ~21x multiple on our 2017E EPS, which we believe is reasonable, if not conservative, when contemplating the underlying earnings growth rate in the coming years," Ryan added.

Jul 2016Deutsche BankMaintainsBuy
Jul 2016NomuraMaintainsBuy
Jul 2016BarclaysMaintainsOverweight

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