Charles Schwab Corp (NYSE:SCHW) is under pressure Wednesday after the investing giant warned it will need to become smaller in an effort to protect profitability. Analysts are cutting estimates as a result.
What To Know: Before the market open on Tuesday, Schwab reported second-quarter revenue of $4.69 billion, beating analyst estimates of $4.68 billion. The company also turned in adjusted earnings of 73 cents per share, beating estimates of 72 cents per share, per Benzinga Pro.
Following the print, JPMorgan analyst Kenneth Worthington cut the firm's price target from $82 to $78 on lower 2025 adjusted earnings expectations. The analyst previously forecasted full-year earnings of $4.81 per share, but now anticipates $4.57 per share.
"While the headline results were largely in line, underlying trends across net new asset growth, interest earning assets, the lack of short-term funding paydown, and lingering (but improving) cash sorting were disappointing," Worthington said in a note to clients.
Furthermore, commentary on a vision for a smaller bank is likely fueling some of the selling pressure on shares as investors question management conviction, the analyst said, adding that the print was "sobering" on multiple fronts.
"The pace of short-term debt paydown and the timing of sustainable net new asset growth re-acceleration remain key variables for Schwab's return to normalization — and we are not yet seeing the light at the end of the tunnel here," Worthington said.
Despite cutting estimates, the JPMorgan analyst still believes the path to recovery remains intact. Worthington highlighted positive commentary regarding the Ameritrade transaction and noted that management maintained key medium-term targets around organic growth and net interest margin.
Goldman Sachs also weighed in on Schwab following the lackluster report. Analyst Alexander Blostein lowered the firm's price target from $75 to $71 and cut EPS estimates to reflect a slower pace of supplemental borrowing pay down and push out on capital returns.
The analyst highlighted elevated deposit outflows at the end of the quarter and an incremental uptick in short-term funding following elevated client engagement as reasons why he continues to believe Schwab remains on a "choppy path" to EPS growth.
"We continue to think the upside remains largely dependent on sweep deposit stabilizing and eventually growing, with both magnitude and timing here remaining less certain. Until we see sustained growth in deposits, we think the restructuring of SCHW's securities portfolio is unlikely and timing of share repurchases will continue to get pushed out," Blostein said in the note.
SCHW Price Action: Schwab shares were down 6.20% at $63.25 at the time of publication, according to Benzinga Pro.
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