Even this drastic move by Schwab could lead to a stock gain, according to JPMorgan

Published Fri, Apr 21 202310:08 AM EDTUpdated Fri, Apr 21 20233:15 PM EDT

JPMorgan said a move away from banking services may boost long term-growth for Charles Schwab stock. The firm reiterated an overweight rating on the stock on Friday, with a price target of $85 per share. That represents 57% upside for investors compared with Thursday's close of $54. On Monday, Schwab had reported an earnings beat, although revenue was largely in line with Wall Street estimates at $5.12 billion, according to data from FactSet. The collapse of Silicon Valley Bank sparked fear over the broader banking sector, and investors were worried that Schwab could face similar issues over long-term bonds held on its balance sheet. Schwab pushed back against sentiments that the firm would be forced to sell securities early at a loss to cover potential customer withdrawals, and said last month that the company had robust access to liquidity and a small loan-to-deposit ratio. SCHW YTD mountain Shares of Charles Schwab were mostly flat in pre-market trading on Friday. In a worst-case scenario — one in which investors view bank regulation as burdensome — a possible move could be for Schwab to de-bank or move away from banking services altogether, JPMorgan said. "Schwab, as a broker that owns a bank, could theoretically de-bank, and return to operating the way it did historically, which was a focus on sweeping cash into money market funds and earning an elevated management fee rather than an even larger spread," JPMorgan analyst Kenneth Worthington wrote on Friday. He added that while the process of de-banking would put pressure on earnings, the move could lead to Schwab stock trading at a higher multiple. "At 20x, a de-banked 2024 projection of $3.20, we arrive at a value of $64 per share, noticeably higher than the current stock price," he said. To be sure, it would be unlikely for management to de-bank Schwab because the added pressure to earnings would be too high of a cost, the analyst said. "While we think de-banking is feasible, we don't expect management would support the unwind of its major initiative because it would cost the company too much in earnings from the Schwab Banks," Worthington said. — CNBC's Michael Bloom contributed to this report.