Deutsche Bank cuts price target on Charles Schwab, liquidity risk fears calming but 2023 EPS impact is significant

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Deutsche Bank cuts price target on Charles Schwab, liquidity risk fears calming but 2023 EPS impact is significant
Credit: © Reuters.

By Davit Kirakosyan

Deutsche Bank lowered the price target on Charles Schwab (NYSE: SCHW ) to $83.00 from $109.00 while maintaining a Buy rating.

The company reported February metrics a day early in response to the 23% drop in the stock Thursday/Friday vs. an 11% drop in the bank index ( BKX ).

While the firm views the CFO commentary in the report, combined with the government's Bank Term Funding Program announced on Sunday, as finally reducing fears of a liquidity problem for Charles Schwab, it mentioned there will be a notable decrease in EPS for 2023 due to the cost of managing greater liquidity.

However, the firm expects Charles Schwab should resume an EPS growth profile above 20% in both 2024 and 2025.

Throughout this banking crisis that began Thursday, the firm doesn’t think Charles Schwab faced a serious risk of rapid and significant client withdrawals that would have put substantial pressure on its liquidity

“This is due to both the nature of SCHW's deposit base (over 80% FDIC insured, diversified, core to its users) and our view that client cash sorting to higher yields is a gradual process that is in its later stages at the company. In addition, SCHW mgmt. has discussed over the past two quarters its access to substantial amounts of liquidity," added the firm.

Shares jumped more than 17% intra-day today (currently up 9%) partly recouping losses incurred over the past three trading days.

CEO Walt Bettinger said he bought 50,000 shares of the company while billionaire investor Ron Baron said he "modestly increased" his position in the stock, CNBC reported on Tuesday.

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