Goldman Sachs Upgrades Schwab to 'Buy' with 25% Upside: Here’s the Playbook

Goldman Sachs has thrown its weight behind Charles Schwab (NYSE:SCHW), upgrading the brokerage giant to "Buy" from "Neutral" and setting a $100 price target—a 25% premium to its current price of ~$79.38. The move underscores Schwab’s transformation into a growth engine, fueled by balance sheet resilience, capital discipline, and a resurgence in organic expansion. Here’s why investors should take notice.

The Catalyst: A 25% EPS Growth Engine Through 2027

Goldman’s thesis hinges on Schwab’s ability to sustain a 25% compound annual growth rate (CAGR) in earnings per share (EPS) through 2027—far outpacing the brokerage sector’s projected 15% growth and the broader financial sector’s 10%. The firm’s 2025 EPS estimate of $4.44 (4% above consensus) marks the starting point of this trajectory, with further climbs to $5.03 in 2026 and $6.29 in 2027.

This growth isn’t just hypothetical. Schwab’s Q1 2024 earnings beat by 3% ($1.04 vs. $1.01 consensus) demonstrated its operational strength. Management’s focus on reducing costly short-term borrowings and stabilizing client cash levels (now at a "floor" of 4% of assets) has bolstered net interest income (NII), which Goldman projects to grow at a 16% CAGR through 2027.

The Buyback Bonanza: $20 Billion in Excess Capital by 2027

Schwab’s excess capital is set to hit $20 billion by end-2027, after retiring $2.5 billion in preferred stock. Starting in late 2025, this cash will fuel aggressive share repurchases, reducing the share count by mid-single digits annually—a key yet underappreciated EPS driver.

Goldman analyst Alexander Blostein notes that this buyback "tailwind" could amplify Schwab’s earnings growth beyond its already robust organic pace. For context, share count reductions of 5% annually would add ~2-3% to EPS growth each year.

Organic Growth Rebounds: Back to 5%-7% by Late 2025

Schwab’s core business is also gaining momentum. After a dip during market volatility, management expects organic growth to rebound to its 5%-7% target range by late 2025, driven by:
- Market share gains: Schwab’s low-cost platform and expanded advisory services are attracting retail investors.
- New account trends: A surge in digital开户 and institutional client wins has boosted client assets.

This resilience aligns with Schwab’s 37-year dividend history, a testament to its financial stability.

Valuation: A Discounted Champion

Despite its growth, Schwab trades at 17x next-12-month (NTM) earnings, in line with its three-year average but below its five-year historical multiple of 19x. Goldman argues this discount is unwarranted, given Schwab’s superior growth profile and its history of trading at a 40%+ premium to peers.

The $100 price target assumes a 17x multiple on 2027’s $6.29 EPS, discounted one year. Even if the multiple contracts to 15x, the stock would still hit $94—above the current price.

Risks and the Bottom Line

No investment is risk-free. Schwab faces headwinds like macroeconomic uncertainty (Truist Securities lowered its target to $84 due to these concerns) and competitive pressures from fintechs like Robinhood. However, Schwab’s $6.6 trillion in client assets, diversified revenue streams (45% from fees, 35% from NII), and fortress-like balance sheet provide a cushion.

The numbers don’t lie: Goldman’s $100 target implies 25%-27% upside, while the average analyst target is $87.32—a gap Goldman aims to close as Schwab’s buybacks and growth materialize.

Conclusion: A Brokerage Built for the Next Decade

Goldman Sachs’ call on Schwab isn’t just a bet on near-term EPS growth—it’s an acknowledgment of the firm’s structural advantages:
- A stabilized balance sheet turning NII into a growth lever.
- $20 billion in dry powder for buybacks that will shrink the share count and supercharge earnings.
- A reaccelerating organic business that’s recapturing investor trust.

With Schwab’s stock still 17% below its 2022 peak, now may be the time to act. As Goldman’s Blostein puts it: "Schwab’s execution is outpacing its story—and the stock should too."

The upgrade isn’t just a rating change—it’s a signal that Schwab’s playbook for growth is working. For investors, this could be the catalyst to finally #BuyTheDip.