JPMorgan Is Downgraded at UBS on Valuation Call

JPMorgan Chase is trading at a multiple that is out of line with its peers.
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Shares of JPMorgan Chase  (JPM) - Get Report faced pressure Tuesday after analysts at UBS downgraded the stock to neutral from buy on concerns about valuation, making it tough for the bank to go higher from its current level.

Despite that bearish outlook, the firm raised JPMorgan’s price target to $138 from $132. The price target is in line with JPMorgan’s previous closing price of $138.23. Shares were down 0.5% to $137.53 on Tuesday.

JPMorgan currently trades at nearly 12 times 2021 expected earnings, a premium over peers like Bank of America  (BAC) - Get Report and Citigroup  (C) - Get Report and other large-cap commercial banks.

“Ultimately, the bar has been raised for further outperformance. In fact, we estimate that continued upside is only warranted if profitability expands materially from an already high base,” analyst Saul Martinez wrote. “The increased PT mainly results from modestly higher earnings and profitability estimates.”

The firm estimated dividends and gross buybacks totaling $29.4 billion in the 2019/2020 cycle, though the bank may not spend all of the money it is authorized to spend over the next 12 months. If that happens, JPMorgan is leaving out yet another catalyst it will need in order to continue its share price growth.

“Though we see JPMorgan as a core holding, the premium valuation of 11.8x 21E earnings/2.3x tbv already reflects its leadership position across financial services businesses, good business momentum, and greater value creation capacity (stronger return profile). We estimate that healthy profitability expansion from already elevated levels is needed to justify strong upside from current levels,” Martinez wrote. 

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