With the U.S.’s biggest banks set to report their earnings on Friday, one analyst team sees a potential winner and a possible loser.
In a Monday report, Deutsche Bank analysts led by Matt O’Connor upgraded
JPMorgan Chase
to Buy from Hold and raised their target for the stock price to $190 from $140. They downgraded Wells to Hold from Buy, maintaining a target of $51 for the stock.
Shares of JPMorgan were 0.6% lower at $171.06 on Tuesday morning, while Wells was down 1.1% to $49.43. The
S&P 500
was down 0.3%.
The profit reports come as the tide appears to be turning for bank stocks after a tough year. The KBW Nasdaq Bank Index fell 5% in 2023, while the S&P 500 posted a 24% gain. But the bank index has outperformed the S&P 500 recently because of optimism that the Federal Reserve will begin cutting rates this year, “which would boost lending activity and help avoid a major credit cycle,” the analysts wrote.
JPMorgan was the best performing bank stock in Deutsche’s portfolio last year, but the team still sees opportunities.
“Shares should benefit from upside to net interest income guidance (vs.
downside risk at peers), good leverage to a pick up in capital markets revenues, and strong capital and loan loss reserve levels,” the analysts wrote, noting that JPMorgan is trading at 11.5 times the per-share earnings they expect for 2024 estimates, slightly above the average of 11 times for bank stocks.
The team is more tentative on Wells stock, explaining that though it has performed well over the last couple of years—keeping costs under control and boasting a capital level higher than its peers—it expects management to issue a weak forecast for net interest income. Wells is also more at risk of loan losses because it has more exposure to commercial real estate, they said.
Wells Fargo is well capitalized with a common equity Tier 1 capital ratio of 11%, but that number has fallen by 1.1 percentage point since 2021, while capital requirements for the overall sector are set to increase, the analysts wrote.
The team says Wells’ stock valuation “seems fair,” with shares trading at 10.7 times its call for the bank’s per-share profit in 2024.
JPMorgan, Wells,
Citigroup,
and
Bank of America
are all scheduled to post their financial results on Friday.
Write to Emily Dattilo at [email protected]
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