Analysts Still Love JPMorgan Best

NEW YORK ( TheStreet) -- JPMorgan Chase ( JPM) remains the most popular big bank stock among Wall Street analysts as it prepares to release third quarter earnings results Friday .

Twenty six of 39 analysts recommend JPMorgan shares to investors, while 12 are neutral and just one, Charles Peabody of Portales Partners, has an "underperform," recommendation, which he has maintained for almost exactly a year.

All that adds up to a rating of 4.4 out of 5 for JPMorgan, according to Bloomberg's scoring system. That is the best among JPMorgan's major U.S. peers, including Wells Fargo ( WFC), Bank of America ( BAC), Citigroup ( C), Morgan Stanley ( MS) and Goldman Sachs ( GS). Citigroup is close behind with a 4.34 rating, while Goldman comes in last of those six with a score of 3.32.

Investors also are bullish on JPMorgan, with shares up 2.19% to $51.86 in mid-morning trading Thursday. The bank's stock remains among the cheapest in the financial sector on a forward price-to-earnings basis. The shares closed at $50.75 Wednesday and traded for just 8.5 times the consensus 2014 earnings estimate of $6.00, among analysts polled by Thomson Reuters.

A call and an email message to Peabody, the lone bear on JPMorgan, weren't returned, and his research could not be obtained, but he told Bloomberg in August he expected an eventual $22 billion in litigation costs for the bank over the next several years, and he thought those costs could reach $5 billion this year.

Since then, JPMorgan has shelled out a total of $1.3 billion to regulators over the "London Whale" trading debacle and an investigation of "illegal credit card practices." The bank also have to pay as much as $11 billion to resolve issues over mortgage backed securities it sold leading up to the crisis.

"The regulators and the Obama Administration want to remove benefits of being big," Peabody said in the August interview. "You're seeing that in the way they're imposing capital restraints, the liquidity requirements, and now if you are too big too manage, they're going to raise the costs of litigation for being too big to manage," he said at the time. He also has "underperform" recommendations on Bank of America, Citigroup and Morgan Stanley, while he rates Goldman "sector perform."

Keefe Bruyette & Woods acknowledged the legal issues in an Oct. 2 report that cited JPMorgan as a top pick, along with Citigroup and Bank of America. Low valuation to earnings estimates is the main reason KBW likes these stocks.

"We understand the overhang on JPM shares tied to litigation concerns, but we see no reason why the shares should not trade back to their pre-litigation concern levels (mid-$50s) if a RMBS settlement (that includes the FHFA) is reached," the KBW analysts wrote.

They also "like the potential core EPS trajectory of BAC in a revenue-challenged environment given the cost saves that are still on the way." For Citigroup, they "expect an improved NIM and a decreasing drag from Citi Holdings to offset weaker trading revenues that are already reflected in the current share price."

In a report published Oct. 3, Wells Fargo analyst Matt Burnell wrote that "within the purer investment banks, we prefer MS to GS due to the former's concentration in wealth management (46% of Q3 2013E revenue) in a quarter of improving market valuations and lower reliance on FICC revenue than GS (13% of total revenue vs. 23% for GS)."

-- Written by Dan Freed in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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