Why Charles Schwab Might Have Room to Run

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Charles Schwab climbed 3% this morning after Compass Point upgraded the discount broker from sell to neutral.

So what: Along with the upgrade, analyst Michael Tarkan raised his price target on the stock to $20 (from $23), representing about 13% worth of downside to yesterday's close. Although Tarkan thinks Schwab shares are still on the expensive side, the company's market-topping Q3 results and guidance yesterday definitely give him a better operational outlook.

Now what: Compass raised its 2013 EPS estimate from $0.74, to $0.76, and its 2014 view from $0.90, to $0.93, on an improved net interest margin outlook. Compass noted:

While we continue to expect actual interest rate hikes (which the company needs to meet normalized earnings expectations) remain a longer-term event, we expect SCHW shares can find support over the next 12 months if modest macro progress continues.

Of course, with Schwab shares up about 90% over its 52-week lows, and trading at a 25-plus forward P/E, much of that macro optimism might already be baked into the valuation. 

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The article Why Charles Schwab Might Have Room to Run originally appeared on Fool.com.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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