While loan growth appears to be improving and credit
conditions remain benign, not everything is great in the banking sector,
as higher deposit costs are starting to squeeze and the yield curve is
flattening out. Even so, JPMorgan Chase (JPM)
continues to generate very good results as management skillfully runs
one of the best banking franchises in the country. As NIM expansion
becomes more challenging, I fully expect the bank’s market share growth
efforts to pay off, allowing the bank to outgrow many of its peers.
As
far as valuation goes, there still appears to be some upside in the
shares. An economic slowdown, or even a recession, is certainly a risk
to the sector, but mid-to-high single-digit long-term earnings growth
from JPMorgan can still support a fair value in the $115-120 range,
while the near-term ROTE likewise supports a similar target.
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JPMorgan Leveraging Its Strengths
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