Beware of faint praise from an equity analyst: It can often trigger a sell-off in a stock. That's what happened Thursday with Charles Schwab (SCHW -0.41%) when investors disseminated news of a prominent bank initiating coverage of the brokerage with a rather "blah" recommendation. Schwab lost nearly 3% of its value across that trading session, comparing unfavorably to the 0.8% rise of the S&P 500 index on the day.
Wells weighs in
No less an institution than mighty U.S. lender Wells Fargo launched coverage of Schwab. The bank's Michael Brown set his recommendation at equal weight (read: Hold) at a price target of $70 per share.
It wasn't immediately clear why Brown only has a neutral stance on the brokerage, but it didn't help with the generally gloomy investor sentiment that has descended recently. In mid-August, institutional investors Toronto-Dominion Bank sold 40.5 million shares of Schwab. While that sale had more to do with the bank strengthening its fundamentals, it wasn't exactly an indicator of confidence in its Schwab investment.
Schwab is also in the midst of a transition. It aims to at least partially exit the banking business, which has struggled in an environment of relatively high interest rates. Investors don't like uncertainty, and Schwab's management hasn't provided sufficient detail as to how it'll look and operate with a slimmed-down banking operation.
Time to leverage those advantages
Schwab has numerous strengths as a company. It still has a wide customer base and a familiar brand name, and it's operating in a frothy environment that's quite healthy for brokerages. Yet, as a business, there are too many question marks hanging over it for many investors' comfort, so it's not surprising that they took a less-than-enthusiastic new analyst note to heart and sold out of the stock.
