Why Charles Schwab's Earnings Momentum and Strategic Moves Justify Morgan Stanley's Raised Price Target

Charles Schwab Corporation (SCHW) has emerged as a standout performer in the financial services sector, driven by a combination of robust earnings momentum, strategic operational innovations, and a compelling capital return story. Morgan Stanley's recent decision to raise its price target for Schwab from $117 to $131—a 12% increase—reflects a growing consensus among analysts that the firm is well-positioned to capitalize on evolving market dynamics. This article evaluates how Schwab's outperforming metrics, upward EPS revisions, and industry-leading innovations justify the optimism and position it as a compelling long-term investment.

Earnings Momentum: A Consistent Outperformer

Schwab's Q2 2025 results underscore its ability to exceed expectations. The company reported adjusted earnings per share (EPS) of $1.14, surpassing the Zacks Consensus Estimate of $1.09 by 4.59%. This follows a pattern of outperformance, with Schwab beating consensus estimates in four of the past four quarters. Year-over-year, earnings surged 56%, from $0.73 to $1.14, driven by a 25% increase in net revenues to $5.85 billion. Key contributors included a 23% rise in trading revenue, a 61% jump in bank deposit account fees, and a 14% growth in asset management fees.

The upward trajectory of EPS estimates further reinforces Schwab's momentum. Over the past 90 days, the consensus EPS estimate for the current quarter has risen from $1.08 to $1.21, reflecting a 10.7% increase. Analysts have raised their 2025 and 2026 EPS forecasts by 5% and 7%, respectively, following Schwab's Q2 results. This trend contrasts with Morgan Stanley's (MS) more neutral EPS revisions score of 54, compared to Schwab's 77, highlighting the latter's stronger short-term earnings trajectory.

Operational Innovations: Staying Ahead of the Curve

Schwab's strategic investments in technology and client-centric services have solidified its competitive edge. The expansion of 24-hour trading to over 1,100 securities via its thinkorswim platform has attracted retail investors seeking flexibility, while its AI-driven tools for independent advisors—highlighted in the 2025 RIA Benchmarking Study—have enhanced operational efficiency. Notably, 68% of RIA firms surveyed reported using AI in some capacity, a trend Schwab has actively supported through its research and platform integrations.

The firm's capital return initiatives also stand out. Schwab recently announced a $20 billion share repurchase program, replacing its previous $15 billion initiative, and declared a regular quarterly dividend of $0.27 per share. These moves, combined with a 15% year-over-year increase in total client assets to $10.96 trillion and 377,000 new brokerage accounts in July 2025, demonstrate a disciplined approach to balancing growth and shareholder value.

Industry Positioning: A Leader in a Transforming Sector

Schwab's performance aligns with broader industry trends, particularly in the Registered Investment Advisor (RIA) space. The 2025 RIA Benchmarking Study, which includes data from over 1,300 firms managing $2.4 trillion in assets, highlights Schwab's role in fostering organic growth. Top-performing RIA firms attributed 12.5% of their asset growth to organic client retention, a metric Schwab's tailored services and digital tools directly support.

Moreover, Schwab's ability to expand its net interest margin (NIM) and leverage higher asset management fees positions it to benefit from a rising interest rate environment. This contrasts with peers that face margin compression due to fixed-income market volatility. Schwab's diversified revenue streams—spanning trading, asset management, and deposit services—provide resilience against sector-specific headwinds.

Investment Implications: A Long-Term Play with Conviction

Morgan Stanley's raised price target of $131 implies a 33.81% upside from Schwab's recent closing price, signaling strong confidence in its long-term potential. This optimism is further supported by Schwab's Zacks Rank of #3 (Hold), which reflects a mix of positive and neutral revisions but underscores the company's consistent ability to exceed expectations. Analysts at Truist Securities and Keefe, Bruyette & Woods have also raised their price targets to $112 and $108, respectively, reinforcing a broadly positive outlook.

For investors, Schwab's combination of earnings momentum, operational agility, and capital return discipline makes it an attractive long-term play. The firm's focus on innovation—whether through AI integration, 24-hour trading, or RIA support—positions it to outperform in a sector increasingly defined by technological disruption. Additionally, Schwab's strong balance sheet and $20 billion share buyback program provide a margin of safety, even in a volatile market.

Conclusion

Charles Schwab's Q2 2025 results, coupled with its strategic investments and industry-leading performance, justify Morgan Stanley's elevated price target. The firm's ability to consistently outperform earnings estimates, expand margins, and innovate in client services positions it as a leader in the evolving financial services landscape. For investors seeking exposure to a company with strong fundamentals and a clear growth trajectory, Schwab represents a compelling opportunity—one that aligns with both short-term momentum and long-term value creation.