Charles Schwab Corporation (NYSE:SCHW) tanked in early trading on Monday, after several analysts cut their forecasts following the company's second-quarter results.
Although the company's shift to a less capital-intensive model could be a positive in the long term, it adds near-term uncertainty that may exert pressure on the stock, according to Piper Sandler.
The Charles Schwab Analyst: Patrick Moley downgraded the rating for Charles Schwab from Overweight to Neutral, while reducing the price target from $80 to $64.
The Charles Schwab Thesis: The company plans to downsize its bank by relying more on third-party banking relationships and is in the midst of a CFO transition, Moley said in the downgrade note.
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Charles Schwab has not provided details of the expected timing or financial impact of its plans, "which could significantly change the economics that drive nearly half of the company's revenues," the analyst wrote.
The delay in the Federal Reserve's interest rate cuts has prevented Charles Schwab "from making meaningful progress on the pay down of supplemental borrowings," he added.
While Charles Schwab's NIM guidance for 2024 has fallen by more than 260 basis points (bps), the company has maintained its forecast of NIMs approaching 300 bps by year-end 2025, which has become less likely, Moley further stated.
SCHW Price Action: Shares of Charles Schwab are down 1.53% to $65.58 at the time of publication on Monday.
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