Charles Schwab Corp.
was lifted to buy from neutral on Monday by Citigroup analysts, who see a a “compelling entry point” from a 23% drop over two days. Shares of the financial services company, down 7% in premarket trading, have been hit by fallout from the failure of Silicon Valley Bank. “We see near-term revenue/earnings headwinds from rising funding costs and continued client cash sorting, but we believe these are reflected in the current stock price. While client cash sorting is a pressure point and we expect to see the magnitude at a higher level than prior cycles, we do not see a material risk to deposits leaving SCHW given the composition of its deposit base and customer protections ($750K in insurance given 3 bank charters),” said Citi analysts Christopher Allen and Alessandro Balbo. They noted that Schwab pointed to $100-$150 billion in funding capacity from supplemental liquidity sources — retail CD’s, Federal Home Loan Banks advances and wholesale funding/repos. It had borrowed $17.1 billion from external debt facilities and $6.05 billion from retail brokered CD’s by end 2022, while from year-end through Feb., it borrowed an extra $16.4 billion from external debt facilities and $9.4 billion in additional brokered CD’s. The company assured that these moves were temporary, said Citi. The analysts cut their price target to $75 per share from $84, still a multiple of 14 times their 2024 earnings per share. Citi analysts said they still prefer brokers with lower levels of client cash/sorting deposit risk, such as Interactive Brokers Group [s: ibkr] and LPL Financial Holdings [s: lpla].
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