Baird Equity Research on Tuesday upgraded JPMorgan Chase (JPM) shares to Neutral from Underperform, pointing to both the bank’s fourth-quarter earnings beat and an improved risk/reward profile.
The lender’s Q4 results were largely bolstered by lower-than-expected operating expenses and better net interest income, although there were some pockets of weakness, including disappointing investment banking fees.
“Q425 PPNR trends remain solid against a high bar during earnings season, as solid fee trends and NII improvement (NIM/loan growth) outpaced expenses, with credit/capital trends declining modestly but remain healthy,” analyst David George wrote in a note.
On the valuation front, JPM has lagged regional banking stocks this year — -4.4% YTD vs. (KRE) +8.1% — making it hard to “make the short case for a best-in-class franchise,” George wrote.
Trading at around 2.95 times tangible book value, George believes the stock is “still relatively expensive” and “we would not recommend adding shares at current prices but see less upside to maintaining a short position ahead of potential bank deregulation.” Seeking Alpha’s Quant system gives JPMorgan (JPM) a poor valuation grade of D-.
JPM shares edged up 0.3% in premarket trading.
Baird’s Neutral rate compares with the average SA analyst rating and the average Wall Street analyst rating, both at Buy, and the Quant rating of Hold.