JPMorgan Chase Falls On Downgrade, Analyst Says Valuation Reflects Its Revenue Power

While JPMorgan Chase & Co’s JPM revenue power is likely to remain best-in-class, the company is rate-sensitive and the Federal Reserve’s rate cuts will hurt performance even if the balance sheet continues to grow, according to BofA Securities.

The JPMorgan Analyst

Erika Najarian downgraded JPMorgan from Buy to Neutral, while reducing the price target from $147 to $100.

The JPMorgan Thesis

Even in a recession, JPMorgan could generate fee growth of 1% in 2020 and 5% in 2021, Najarian said in the downgrade note. The Corporate & Investment Bank unit seems poised to continue gaining market share, while the company’s trading revenue may grow due to market volatility and wider spreads.

The analyst said, however, that the 150 basis points reduction in the fed funs rate will hurt JPMorgan. She lowered the earnings estimates for 2020 and 2021 by 24% to $8.08 per share and 34% to $7.55 per share, respectively, saying that the reduction reflects a possible U.S. recession.

Credit performance in the banking industry is likely to be the most challenged for unsecured consumer loans and the commercial & industrial segment. When the economy recovers, peers may see their stocks bounce back more than JPMorgan Chase, given its already premium valuation, Najarian mentioned.

JPM Price Action

Shares of JPMorgan declined 5.5% to $92.43 at time of publication Friday.

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