Despite both houses of Congress approving the new tax bill, shares of JPMorgan (JPM) - Get JPMorgan Chase & Co. (JPM) Report and Wells Fargo (WFC) - Get Wells Fargo & Company Report faded from their highs throughout Wednesday's trading session.
However, both are higher in early Thursday trading. The lowering of the corporate tax rate should surely be a positive catalyst. As should higher interest rates in 2018. As the economy continues to improve, more banking should take place as well.
In fact, those catalysts should lead to outsized gains going forward. Buckingham analyst James Mitchell upgraded JPMorgan to buy from neutral and bumped his price target to $135 from $100, implying about 27% upside from current levels. The banks have "sizable earnings leverage" thanks to its new lower tax rate. Its buyback should act as a tailwind while potentially lower banking regulations may increase the company's capital returns to investors.
He was bullish on Wells Fargo, too, upgrading the stock to buy from neutral and raising his price target to $75 from $57. Mitchell's new target implies about 25% upside for the bank. Like JPMorgan, Wells Fargo has improved leverage from the tax deal, but also has low expectations and an attractive valuation. A large capital return could be in store for investors in June, he reasoned.
While JPMorgan and Wells Fargo are set to benefit, it could cost others. Specifically, Citigroup (C) - Get Citigroup Inc. Report will likely be on the hook for about $20 billion as a result of the new tax plan.
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JPMorgan stock is up 0.53% to $106.70, while Wells Fargo is up 1.35% to $60.95 in early Wednesday trading.
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This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.