Donald Trump will be the 47th president of the United States. This means that there are many expectations for regulatory changes which could boost bank stock prices.
Analysts predict that Trump’s Administration will be less regulated, and this could prove to be a game changer for financial institutions.
The backdrop of this environment is likely to drive increased mergers and purchases (M&A).
David George, Baird’s analyst, is still cautious but has downgraded JPMorgan Chase & Co. (NYSE: JPM), signaling possible risks to investors.
What caused Baird to turn negative on JPMorgan?
George’s view of JPMorgan has been clouded due to concerns about the over-earnings from net interest and credit income.
The analyst notes that JPM is expensive at the current market price and suggests a reduction in exposure because of an unfavorable reward-risk profile.
George said in a Thursday research note that “we know we are fighting against the tape, but it seems to make sense” to sell.
Analysts’ $200 price target represents a decline of 19% from JPMorgans’ most recent closing prices.
The shares of JPMorgan Chase are currently trading for approximately 2.6x their tangible book values and more than 14 times the estimated earnings per share. (EPS) in 2026. This is nearing, or exceeding historical highs.
JPMorgan’s stock is up more than 45% since its low for the year in mid-January. This makes it an outstanding performer.
Baird, however, argues that the recent significant rally has already priced in the majority of good news, which makes the stock at its current level less appealing.
JPMorgan still offers investors a yield of dividends at 2.11% despite the downgrade. This could be appealing to those looking for passive income.
JPM is unlikely to increase buybacks further
George doesn’t expect JPMorgan to expand its stock-buyback program, even though Trump’s policies may create a favorable regulatory environment and lead to an increase in capital returns.
He added that at these prices buybacks do not have a significant impact on EPS, and they are not a good use of capital.
JPMorgan’s third-quarter results were strong, exceeding Wall Street expectations.
The bank’s net interest income increased by 3.0% over the previous year, to $23.5 billion. This was higher than expected at $22.73 milliards.
George cautions, however, that despite this strength the Federal Reserve’s move towards lowering rates could put pressure on the margins of the banks in the future.
In September, the central bank cut rates by 50 basis points. It is expected to make its next decision on policy later Thursday.
Investors should consider reducing their investment in JPMorgan stock, as Baird warns that the return of Trump to office could be good for the entire banking industry.
The post, Why JPMorgan Stock Could Face Headwinds Despite Trump’s Expected Pro-Bank Policies may change as new developments unfold.
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