JPMorgan Chase Price Target Upped On Calmer Europe

NEW YORK ( TheStreet) -- Morgan Stanley analyst Betsy Graseck on Thursday raised her price target for JPMorgan Chase ( JPM) to $45, "on reduced European risk."

Graseck also said that contrary to the "consensus view that JPM is cutting commercial loan pricing to take share," regulatory data showed that the company's "loan yields are drifting higher," boosting JPMorgan's net interest margin.

The analyst raised her 2013 earnings estimate by two cents to $5.20 a share, while leaving her 2012 EPS estimate unchanged, at $4.46.

JPMorgan Chase's shares closed at $39.95 on Wednesday, returning 21% year-to-date, following a 20% decline in 2011.

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JPMorgan's shares were trading for 1.3 times tangible book value according to HighlineFI, and for 8.5 times the consensus 2012 earnings estimate of $4.69, among analysts polled by Thomson Reuters. The consensus 2013 EPS estimate is $5.45.

Here's a summary the same data for the rest of the "big four" U.S. bank holding companies:
  • Shares of Bank of America (BAC) closed at $8.00 Wednesday, returning 44% year-to-date, following a 58% decline in 2011. The shares trade for just 0.6 times tangible book value, but for 11 times the consensus 2012 EPS estimate of 71 cents. That's the highest forward price-to-earnings ratio among the big four. The consensus 2012 EPS estimate is $1.29.
  • Shares of Citigroup (C) closed at $33.24 Wednesday, returning 26% year-to-date, following last year's 44% decline. Citi also trades at a heavily discounted 0.7 times tangible book, and at a much lower multiple of eight times the consensus 2012 EPS estimate of $3.99. The consensus EPS estimate for 2013 is $4.79.
  • Wells Fargo (WFC) closed at $30.42 Wednesday, returning 11% year-to-date. The shares trade for 1.7 times tangible book value, which is the highest price to book ratio among the big four, reflecting Well's Fargo's status as the best and most consistent earner among the group, with returns on average assets ranging between 1.11% and 1.27% over the past five quarters, according to HighlineFI. The shares trade for 9.5 times the consensus 2012 EPS estimate of $3.20. The consensus 2013 EPS estimate is $3.69.

Graseck raised her price target for JPMorgan chase because of the company's "exposure to European resolution, which improve s capital markets," and that the company's "stronger balance sheet and market position will enable it to take share."

"Taking share in tough markets makes it a very attractive way to play the second half of 2012 macro risk/opportunity," she said.

Graseck's $45 price target for JPM is based on a "base case," scenario, with a "modest U.S. recovery," including "sub-par economic growth," a continued decline in problem loans, and a price-to-tangible book ratio of 1.2.

The analyst's "bull case" brings the price target up to $60, in a scenario that includes a "faster, stronger U.S. recovery," with "greater global GDP growth," and faster credit improvement in the base case. In the bull case scenario, Greseck says the shares could trade at 1.6 times tangible book value.

In Graseck's "bear case," which includes a "double dip U.S. recession," with "slower global GDP growth," Graseck's price target for JPM would be $33, with the shares trading at 0.9 times tangible book value.

Based on the regulatory data and a meeting with Doug Petno, the CEO of JPMorgan's commercial bank, Graseck said that JPM was "pricing loans to meet return hurdles, not to undercut and take share," and that building out the footprint of Washington Mutual -- which JPM purchased from the Federal Deposit Insurance Corp. after the thrift failed in September 2008 -- was a "huge opportunity for JPM to almost double number of clients, but winning those clients will take time."

Graseck concluded that JPMorgan Chase is "best positioned for market share gains given its stronger credit rating, and it still has room to benefit from stronger credit as mortgage loan default servicing costs likely decline in 2012-13."

"JPM is the cheapest money center, measured by both P/E and P/B when you factor in return on equity," she said, adding that "when you buy JPM, for every 1% point of ROE you are paying 0.8x 2013e EPS (vs BAC at 1.9x, Citi at 1.2x and Goldman Sachs at 1.1x)."

Interested in more on JPMorgan Chase? See TheStreet Ratings' report card for this stock.

-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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