Jefferies upgrades JPMorgan Chase to buy from hold ahead of Q2 profit update

By Steve Gelsi

Jefferies analysts upgrade JPMorgan to buy while cutting earnings estimates for Goldman Sachs and Morgan Stanley

Jefferies analysts on Tuesday upgraded JPMorgan Chase & Co. to buy from hold and raised their price target by 11% to $165 a share as they took aim at earnings estimates and ratings ahead of second-quarter earnings season.

Meanwhile, the analysts also cut their earnings targets for Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS) amid lower deal-making activity in investment banking.

"While JPM has been a recent winner, we upgrade the stock to buy given a stable earnings outlook, best-in-class return on equity profile, conservative reserving history, and better revenue diversity," analyst Ken Usdin said in a research note.

JPMorgan (JPM) reports second-quarter earnings on Friday.

Citing a decline in investment banking and sales and trading, Jefferies analyst Daniel Fannon lowered his second-quarter profit view for Goldman Sachs by 56% to $3.82 a share, below the latest consensus estimate of $4.73 a share as compiled by FactSet.

He also reduced his second-quarter profit view on Morgan Stanley by 32% to $1.17 a share, below the consensus estimate of $1.22 a share.

While lower deal-making volume drove most of the decline in estimates, equity capital markets have been a modest plus for the banks, Fannon said.

Goldman Sachs also faces about $1 billion in commercial real-estate and goodwill impairments, while Morgan Stanley will book some severance costs.

Goldman is also reportedly shopping around its credit-card alliance with Apple Inc. (AAPL) as part of its effort to consider strategic alternatives for its consumer-banking units, Fannon said.

Overall, Usdin said the bank continues to prefer trust banks Bank of New York Mellon (BK) and State Street Corp. (STT) and broker-dealers Goldman Sachs and Morgan Stanley ahead of most regional banks, given their smaller net interest income burdens, more stable preprovision net revenue and minimal credit risk.

Jefferies also downgraded Truist Financial Corp. (TFC), Zions Bancorp (ZION) and Hancock Whitney Corp. (HWC) to hold from buy on downward revisions to net interest income and "limited differentiating catalysts."

JPMorgan Chase's stock is up 0.6% on Tuesday, while Truist is down 0.5%, Zions is off by 0.5% and Hancock Whitney is lower by 1.9%. Goldman Sachs's stock is down by 0.2% while Morgan Stanley is moving up by 0.3%.

Also read: Fed's Michael Barr proposes new capital requirements for banks with $100 billlion

-Steve Gelsi

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07-11-23 0959ET

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