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Shares of Charles Schwab Corp. SCHW fell in early trading Wednesday despite record second-quarter results, with Citizens JMP Securities arguing the selloff overlooks the company’s expanding earnings power and growth runway.
The Charles Schwab Analyst: Analyst Devin Ryan reiterated a Market Outperform rating and price target of $120.
The Charles Schwab Thesis: The company delivered a strong beat-and-raise quarter, with record results, Ryan said in the note, adding that its interest margin is poised to expand.
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Ryan highlighted the following from the company’s second-quarter results:
- Adjusted earnings grew 42% year-on-year to $1.62 per share, topping consensus by 7 cents per share, or 5%.
- Net revenue grew 21% year-on-year to record $7.07 billion.
- Net revenue exceeded Street expectations by approximately $156 million.
- Adjusted pretax income rose 31%
- Adjusted pretax margin expanded around 420 basis points (bps) to 54.3%.
The Outlook: Management raised its 2026 revenue growth outlook to 17.5%-18.5%, from their prior projections of 14%-15% in May and 9.5%-10.5% in January, the analyst stated.
The company also raised its adjusted expense growth guidance to 9.5%-10.5%, from 8.5%-9.5% in May and 5.5%-6.5% in January, he added.
Importantly, the increase in the midpoint of revenue growth since January substantially exceeds the increase in expense growth guidance, which supports "considerably stronger operating leverage than initially contemplated," Ryan noted. This means the company expects to achieve "attractive incremental margins even with the additional growth spending," the analyst wrote.
While the net interest margin (NIM) outlook has improved significantly, "with balance-sheet growth adding to the repricing benefit," Charles Schwab’s organic growth has accelerated, he further stated.
SCHW Price Action: Shares of Charles Schwab had declined by 0.08% to $99.88 at the time of publication on Wednesday.
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This article Charles Schwab’s Earnings Base, Growth Opportunities Continue To Expand, Says Bullish Analyst originally appeared on Benzinga.com.
