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Baird Downgrades JPMorgan to Sell, Citing High Valuation and 20% Downside

AInvestThursday, Nov 7, 2024 6:55 am ET
1min read

Baird issued a rare downgrade for JPMorgan Chase on Thursday, warning of the high valuation of the U.S.'s largest bank.

Analyst David George downgraded the stock to underperform from neutral, with a price target of $200. This implies a 19% downside from Wednesday's close. 

The stock dipped 0.6% pre-market and has risen nearly 49% year-to-date.

George advised clients to take profits, citing a poor risk/reward balance and limited potential for stock price growth. He noted that JPMorgan is over-earning on both net interest income and credit, making the stock expensive at current trading levels.

"We find that expectations are quite high, with the stock trading at ~2.6x tangible book value, 15% cap to assets, over 14x 2026 earnings per share estimates, and ~10x pre-provision net revenue – all close to or at all-time highs," he wrote in a Wednesday note to clients. These valuations raise questions about the stock's future growth potential.

"We know we are fighting the tape here, but believe it makes sense to sell the stock." George also noted that, even with a potentially more friendly regulatory environment under a second Trump administration, JPMorgan Chase may not grow its buyback program from here.

"While a more bank-friendly regulatory environment should lead to a greater opportunity for outsized capital return in the near term, we don't expect JPM to aggressively buy back its stock at these levels," he continued. "At these prices, buybacks simply don't have the desired impact on EPS and aren't a great use of capital in our view."

George suggests that despite the current market trends, which may seem favorable, it is prudent for investors to consider selling their shares in JPMorgan. The firm believes that the current stock price does not offer an attractive opportunity for investors looking for upside.

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