Why Charles Schwab Corp Shares Could Pop 30%

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 Corp (NYSE: SCHW  ) gained about 2% this morning after Jefferies initiated coverage on the discount brokerage with a Buy rating.

So what: Along with the bullish call, analyst Daniel Fannon planted a price target of $35 on the stock, representing about 30% worth of upside to Friday's close. So while contrarian traders might be turned off by Schwab's price strength over the past year, Fannon's call could reflect a sense on Wall Street that its growth prospects still aren't fully baked into the valuation.

Now what: According to Jefferies, Schwab's risk/reward trade-off is rather attractive at this point. "SCHW represents one of the premier asset gathering franchises within all of financial services," said Fannon. "The combination of the absolute benefit as well as the immediacy of the impact from higher rates coupled with ongoing organic growth potential represent a compelling investment backdrop, in our view." With Schwab shares flirting with their 52-week highs and trading at a 30-plus forward P/E, however, I'd hold out for a wider margin of safety before betting too heavily on that potential. 

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