Financial services stocks took a spill as SVB Financial Group’s distress cued a sell-off in banks, but investors should use the decline to snap up shares of Charles Schwab on the cheap. Charles Schwab shares dipped more than 7% on Friday morning, following a nearly 13% decline during Thursday’s trading session. SCHW 5D mountain Significant decline in Charles Schwab shares following SVB Financial’s announcement The significant drop in financial services stocks has been fueled by a massive sell-off of tech-focused bank SVB Financial’s shares. Investors lost confidence in SVB after it announced a plan to raise more than $2 billion in capital to help offset losses on bond sales. The concern spread to the overall financial sector, which dropped 4.1% Thursday for its worst day since June 2020. However, several analysts believe that such fears are overblown and remain bullish on Charles Schwab, saying that the current decline presents a promising entry point into Schwab’s shares. “Parallels to SIVB only run skin-deep,” UBS analyst Brennan Hawken wrote in a Thursday note. “While SCHW does have a relatively long-dated securities portfolio and declining deposit balances, the similarities, in our view, end there.” Hawken added, “SIVB is a traditional lender, primarily serving early/mid-state technology and VC-backed growth companies, while SCHW caters to retail wealth management (a structurally stickier deposit base). Although SCHW has seen its fair share of deposit flight (avg. deposits are down 9% Y/Y), they have several levers they can pull before selling securities at a loss.” UBS has a buy rating on Charles Schwab shares. The firm’s price target is $90, which implies about 35% upside from the stock’s closing price on Thursday. Deutsche Bank also viewed the sell-off as “overdone,” saying that investors have overblown Schwab’s liquidity risks. Analyst Brian Bedell wrote that Thursday’s decline created an “attractive buying opportunity.” “Overall, we see SCHW’s liquidity profile as being quite solid against expected, or even a more severe scenario, of client deposit withdrawals from its balance sheet,” Bedell said. He set a price target of $109 and maintained his buy rating. Morgan Stanley also agrees that the sell-off is overdone. Analyst Michael J. Cyprys maintained his overweight rating on the stock, and anticipates it rallying nearly 50% from its closing price on Thursday. Cyprys said in a client note on Friday that a “sharp sell-off presents a compelling entry point for a high quality franchise that should be able to better navigate liquidity risks than the market prices in, given significant financial strength/ flexibility, liquidity profile and significant earnings/capital generation.” Piper Sandler is also overweight on the stock and maintained its price target of $100, noting “we see a significantly different scenario compared to banks like SIVB.” “We note SCHW remains well above its regulatory capital minimum (Tier 1 leverage ratio was ~7.2% at YE22 vs. 4.0% minimum requirement),” analyst Richard Ripetto wrote in a Friday note. “We feel that yesterday’s sell off is overdone and could present an attractive entry point into one of the strongest brands in financial services.” —CNBC’s Michael Bloom contributed to this report.
