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JPMorgan (JPM) and Wells Fargo (WFC) are scheduled to announce quarterly results on October 11. What to watch for:
MOST SIGNIFICANT DISCOUNT: On Tuesday, Wolfe Research upgraded Wells Fargo to Outperform from Peer Perform with a $65 price target. While the firm sees downside to consensus across its rate-sensitive bank coverage and says Wells Fargo is no exception, Wolfe also argues that the risk is better reflected in the stock’s multiple, with the shares trading at one-turn discount versus its target price-to-earnings ratio, the most significant discount in the bank and broker group. The firm believes upside from Wells Fargo’s eventual asset cap liftoff “doesn’t appear priced in.”
MOVING TO THE SIDELINES: Late last month, Morgan Stanley downgraded JPMorgan to Equal Weight from Overweight with a price target of $224, up from $220. The firm says a faster pace of interest rate cuts is positive for net interest margin at mid-cap banks and more mixed for large-cap banks. Morgan Stanley sees more room for positive net interest margin surprises elsewhere in its coverage relative to JPMorgan. Further, the firm is modeling for negative operating leverage next year and is “taking some chips off the table” after the stock’s outperformance.”
NII TO CONTINUE TO FALL: Goldman Sachs lowered the firm’s price target on JPMorgan to $237 from $241, keeping a Buy rating on the shares as part of a broader research note previewing Q3 results for America’s Banks. The firm believes that net interest income will continue to fall once again in Q3 by 4% on average, given lagged deposit repricing and ongoing, tepid loan growth, more than outweighing fixed asset repricing, and net interest income that is only expected to inflect in Q2 of 2025, Goldman says. Concern around charge-offs, in particular credit card and commercial real estate, has moderated in recent months, but reserve builds for banks could continue, the firm added.Goldman also lowered the firm’s price target on Wells Fargo to $64 from $65, while maintaining a Buy rating on the shares.
ELUSIVE LOAN GROWTH: JPMorgan raised the firm’s price target on Wells Fargo to $63.50 from $48, while keeping a Neutral rating on the shares as part of a Q3 earnings preview for the large cap banks. Loan growth “remains elusive” for banks and the slowdown of rate cuts following Friday’s strong jobs report will further push back the expected recovery in these loans, the firm tells investors in a research note. Neutral says bank stocks “have been choppy recently” with regional banks outperforming money centers since the Q2 earnings in anticipation of greater benefit to them from sizable rate cuts over the next 18-24 months. In the near term into earnings, the firm prefers the money centers.
OUTLOOK: Speaking at the Barclays 22nd Annual Global Financial Services Conference last month, Wells Fargo reiterated FY24 net interest income guidance and said it expects card charge-off rate to come down in Q3. The bank sees more stock buybacks in the second half of the year, but at a slower pace than in the first half.Also speaking at the Barclays 22nd Annual Global Financial Services Conference, JPMorgan said it saw very solid capital markets performance in Q3, with Q3 markets revenue flat to up about 2% year-over-year. The bank made no change in guidance for credit card net charge-offs.
APPLE CREDIT CARD: JPMorgan was said to be in talks with Apple (AAPL) about taking over its credit card program, The Wall Street Journal’s AnnaMaria Andriotis and Alexander Saeedy reported last month. Apple and Goldman Sachs (GS), the current issuer of the card, decided to part ways last year on their partnership, which includes credit cards and savings accounts. Discussions with JPMorgan started earlier this year and have advanced in recent weeks, though a deal could still be months away, people familiar with the matter say, adding that Apple has also spoken with Synchrony (SYF) and Capital One (COF) to gauge their interest in taking over the credit card program. The team at JPMorgan negotiating the deal wants to pay less than the full-face value of the roughly $17B in outstanding balances in the Apple credit card program, the people say.More By This Author:StandardAero Surges In Market DebutWall Street’s Top 10 Stock Calls This Week – Saturday, Oct. 5Here’s What Wall Street Is Saying About Nike Ahead Of Q1 Earnings