Only one out of two dozen stocks in the KBW Bank Index was left standing in the green Friday as industry giants kicked off earnings season.
Shares of JPMorgan Chase & Co. have muscled past major peers and smaller regional lenders this year, benefiting from its breadth and size. The largest US bank gained further after posting record revenue on Friday. Its results extended a theme that’s been permeating all year amid the regional bank crisis that buffeted smaller lenders.
“JPMorgan’s structural position is about as strong as it’s ever been, and this is allowing them to show greater share scaleability and resiliency,” Wells Fargo analyst Mike Mayo, who holds an overweight rating on JPMorgan and has dubbed it his top pick, said in a phone interview. “JPMorgan stands the tallest. Goliath is really, really winning.”
The KBW Bank Index has tumbled 18% this year, while JPMorgan has gained 14% and closed Monday at the highest level since February 2022. The bank has been the gauge’s top performer since March, when the regional bank tumult began, and has far outpaced key rivals like Bank of America Corp. and Goldman Sachs Group Inc.
The Jamie Dimon-led bank’s results continued to reflect its diversified client base, with management hiking its net interest income guidance for the year. It also got a boost from scooping up First Republic Bank from receivership in May.
Read More: JPMorgan Posts Record Revenue on Rates, First Republic Deal
Smaller bank stocks were pummeled earlier this year as the collapse of Silicon Valley Bank and other regional lenders sparked fears of deposit flight. While deposits have stabilized, the sector remains under pressure as investors are wary of rising deposit costs, potential regulatory changes and looming credit risks for commercial real estate.
Read More: Regional Banks Battle for Deposits With Tougher US Rules Looming
To be sure, JPMorgan isn’t immune to the pressures. “Significant sources of uncertainty remain,” and the bank expects the net interest income run-rate to be “substantially below this quarter’s run rate at some point in the future, as competition for deposits plays out,” Chief Financial Officer Jeremy Barnum said on a Friday conference call.
Those concerns helped fuel the overall drop in bank stocks Friday, with the KBW Bank Index and a gauge of regional lenders each falling about 2%.
“If JPM’s results and outlook point to greater than expected revenue contraction, where many consider its performance/positioning to be best in breed, it reinforces the view that fundamental pressures and therefore negative EPS revisions will be even greater for the majority of the industry,” Raymond James analysts including Michael Rose and David Long wrote in a note.
Read More: Big Banks Are Finally Giving Depositors a Cut of Fed Windfall
However, analysts remain optimistic about JPMorgan. Nearly two dozen have buy-equivalent ratings, while only eight say hold and no one on the Street says sell, according to data compiled by Bloomberg.
The average price target of about $169 has risen by nearly $7 over the past week, as analysts tweak their expectations higher around the latest earnings report.
Despite surpassing its peers, JPMorgan still lags the S&P 500 Index’s 18% rally this year. Mayo pointed out that JPMorgan continues to trade at a discounted valuation multiple on a price-to-earnings basis compared to the broader benchmark gauge.
“JPMorgan is like the LeBron James of banking. They’re good not only at defense, they’re good at offense,” Mayo said. “This quarter showed how they’re able to put a lot of points on the board, while maintaining balance sheet strength.”
(Updates stock moves throughout to market close.)
