Near-term catalysts and headwinds
Banking stocks are expected to benefit from higher net interest income due to higher deposit margins and loan book expansion. For JPMorgan Chase (JPM), higher loans and deposits and increased card margins are expected to drive its top line. The lower effective tax rate, operating leverage, and share buybacks will likely drive double-digit growth in the bank’s bottom line.
Fed Chair Jerome Powell’s comment implied that the Fed might not hike rates soon, which could pressure banks’ top lines. On January 8, Jefferies downgraded JPMorgan Chase to “hold” from “buy.” For JPMorgan Chase, increased competitive activity could hurt its financials. UBS maintained a positive outlook on large-cap banks.
JPMorgan Chase could sustain its momentum in the coming quarters due to higher loans and deposits and market leading IB fees. The bank could improve its efficiency even if its revenues slow down. However, JPMorgan Chase trades at a higher multiple compared to its peers. JPMorgan Chase trades at a price-to-book next 12-month ratio of 1.34x, which higher than the peer group average of 1.07x. In comparison, Citigroup (C) and Goldman Sachs (GS) are trading at attractive valuation multiples.