Business has been so bad at brokerages for so long that one might ask when will this grinding bear market ever end. Although it is too early to tell, there have been some good signs buried in the rubble.
Morgan Stanley analyst Henry McVey released a research report Thursday on Charles Schwab that shows glacier-like, but still apparent, progress. The report doesn’t change McVey’s rating—a rather tepid “equal-weight,” (which itself is an upgrade from an “underweight” rating a while back)—but his report does say, “The company appears to be inching back from a dismal September.” The report says that net asset inflows to Schwab were $3 billion in October, up 66.7 percent from September, and that “higher trough ROEs are still likely during this cycle.” McVey also expects November to show even more improvement for Schwab.
Still, McVey points out that mutual fund flows are “headed in the wrong direction” and lowered his estimation of the firm’s total net inflows from $15 billion to $12 billion. Merrill Lynch wasn’t even that optimistic, keeping Schwab’s recommendation at “sell” and trimming its 2002 and 2003 EPS operating estimates. It even claimed Schwab shares are “overvalued compared to peers.” McVey was unavailable for comment.
News was also mixed for Citigroup. Piper Jaffray’s report on the stock, also released Thursday, continued its “strong buy” rating but trimmed EPS estimates across the board.
But it would appear to be at least a halfway decent sign that analysts are no longer steadfastly avoiding brokerage stocks and acknowledging that matters are pulling in the right direction. There may be a long way left to go, but many changes have been made, and, quietly, analysts may be beginning to become aware.
