Charles Schwab stock selloff deepens; Morgan Stanley calls it overdone


Charles Schwab (NYSE:SCHW) stock tanked 8% in Friday morning trading, adding to the 13% drop in the prior session when an 8.5M share block sale spooked investors. Even so, Morgan Stanley thinks the selloff is overdone.

Analyst Michael Cyprys still views SCHW as an Overweight pick as the ongoing slump in shares "is a knee-jerk reaction that compounds on long-simmering concerns about cash sorting thathave persisted ever since rates started to rise in 2022and have only intensified as the market revises higher its" prospects for the peak policy rate.SourceMoneyGuru-

As part of the brokerage firm's 2023 Winter Business Update towards the end of January, Charles Schwab (SCHW) CFO Peter Crawford commented on his expectations for cash sorting, which occurs when clients move their cash into higher-paying money market funds from lower-yielding bank deposits.SourceMoneyGuru-

Crawford contended that cash sorting will slow down "at some point" during the year, and warned that average interest-earning assets could fall as much as 12% Y/Y in December with interest rates still on the rise.SourceMoneyGuru-

Nonetheless, SCHW's "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," Cyprys wrote in a note.SourceMoneyGuru-

The Overweight rating diverges from SA's Quant rating of Hold and agrees with the average analyst rating of Buy.SourceMoneyGuru-

SA contributor JP Research also thinks SCHW is a Buy due to upbeat commentary on the Ameritrade integration as well as a number of incremental growth drivers.SourceMoneyGuru- SourceMoneyGuru-




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