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JPMorgan Cut to Market Perform at KBW as Shares Are Relatively Expensive

KBW sees the bank's stock price as 'stretched,' leading to a tough road ahead in 2020.
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JPMorgan Chase  (JPM) - Get JP Morgan Chase & Co. Report has been a hot stock in 2019, climbing nearly 40% year to date -- and the stock is now relatively expensive, according to a Tuesday note from KBW.

Despite KBW's view of the New York bank as best in class, the firm cut the bank’s rating to market perform from outperform on its expectation that JPMorgan’s earnings estimates are done climbing.

"[Investors] should own stocks where consensus earnings estimates have the potential to rise,” analyst Brian Kleinhanzl wrote. Upside to JPM shares is "limited," he said.

KBW's target price on JPMorgan is $135 a share. They closed Monday off 0.5% at $134.41.

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In late 2018 shares of JPMorgan and the rest of the banking sector pulled back sharply, setting up JPM stock for the gains it saw in 2019, according to KBW. 

"JPM  is currently trading at 12.6 times our 2020 estimate and this is near the high for the company’s recent history," the analyst wrote. "We would look to add shares when valuations are more reasonable. ..."

KBW’s bank index has seen a 29% year to date gain and the S&P 500 is up 25% in 2019. KBW has a neutral rating on “universal” bank stocks in 2020 with a forecast of 6.9% earnings year-over-year growth for the median universal bank stock.

“Capital return and underlying fundamentals are stable, but we expect the group to struggle to have positive operating leverage against a flattish yield curve and growth that remains fairly anemic,” Kleinhanzl said.

One bank that could buck this trend in 2020, according to Kleinhanzi, is State Street  (STT) - Get State Street Corporation Report. KBW upgraded the stock to outperform on expectations for higher capital return and balance sheet growth.