Shares of JPMorgan along with other large-cap and large regional banks could be due for gains in coming months according to Keefe, Bruyette & Woods, in contrast to a bearish call from HSBC that helped knock the stocks on Tuesday. On Wednesday, KBW, a firm that’s long specialized in covering financials, upgraded JPMorgan and Morgan Stanley to outperform from market perform, setting its price target for JPMorgan at $327, up from $253 and implying more than 27% upside from Tuesday’s close. Morgan Stanley’s 12-month price target moved to $160 from $127, which would translate into a 13% bump in the stock. “JPM has cracked the code on scale, leading to a higher and more durable return profile,” analyst Christopher McGratty wrote in a massive, 188-page report. “Front-foot investing and the benefits from deregulation only widen JPM’s competitive moat to peers.” The bullish call at KBW contrasts with a downgrade of JPMorgan by HSBC, which said it was adopting a “more cautious stance” on large-cap banks, including and others such as Goldman Sachs , citing a turbulent macroeconomic landscape. Shares of JPMorgan came under pressure Tuesday, falling more than 3%, while Morgan Stanley and Goldman each dropped about 2%. The moves came after huge rallies in the second quarter. Over the past three months, JPMorgan and Morgan Stanley both outpaced the S & P 500, soaring nearly 21% and more than 26%, respectively. JPM MS 3M mountain JPM vs. Morgan Stanley, 3-month Among regional banks, KBW upgraded Citizens Financial to outperform from market perform and PNC Financial Services to market perform from underperform. The price target on Providence, Rhose Island-based Citizens went to $57 from $45, representing about 20% upside, while PNC moved to $212 from $185, which would equal about 7% more upside in the Pittsburgh-based bank. Citizens Financial and PNC Financial Services have also outperformed in the past three months, rallying almost 27% and 23%, respectively. CFG PNC 3M mountain Citizens vs. PNC, 3-month McGratty cited “business model superiority” and higher returns on tangible common equity (ROTCE) and less ROTCE volatility in recommending the large-cap banks, particularly JPMorgan and Morgan Stanley. “We are bullish on the long-term structural benefits of scale and have an affinity for business models that can produce leading returns with high degrees of predictability – both distinguishing characteristics of several Universal Banks,” the analyst wrote of the larger banks. Additionally, McGratty anticipates a shift toward deregulation in the banking sector, leading to more stock buybacks, especially for large-cap banks but extending to large regional banks, although “to a lesser extent.” For regionals like Citizens Financial and PNC Financial Services, the analyst said strategic mergers and acquisitions is an emerging catalyst. Shares of all four banks were marginally higher premarket Wednesday following the KBW call.
