Goldman Sachs Upgrades JPMorgan (JPM) to Conviction Buy; Says Too Many Positive Catalysts

June 26, 2012 6:50 AM EDT
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Price: $83.67 +0.44%

Rating Summary:
    17 Buy, 19 Hold, 4 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 30 | Down: 30 | New: 23
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Goldman Sachs is adding JPMorgan (NYSE: JPM) to its Conviction Buy List with a $42 price target.

The firm sees 19 percent of upside following CEO Jamie Dimon's testimony in front of House Financial Services and Senate Banking Committees due to losses in its CIO division. Goldman further commented, "Since JPM announced the trading loss on May 10, shares have materially underperformed peers, down 13% versus the BKX down 6%. We continue to believe JPM has the earnings power and capital strength to offset the trading loss, given a diverse earnings stream (CIO is only 5% of average EPS), and strong capital position (9%+ Basel 3 Tier 1 Common by 2013 even with capital distribution), and believe the core strength of the franchise is being overlooked."

Although JPMorgan canceled its buyback program, Goldman thinks capital return to investors is intact, "as EPS could fall 50% from our forecast without threatening the dividend and buybacks could resume later in 2012, further supporting shares."

Catalysts for upside following the 13 percent drop include:
  • Average 5 percent contribution by CIO unit;
  • solid near-term returns amid stressed hedge fund losses; and
  • the lowest P/E coupled with the highest returns in the banking sector.
Risks include: "slower-than-expected economic recovery, increased political and economic uncertainty in Europe, increased regulatory overhang, and future headline risk from JPM’s CIO loss."

JPMorgan shares are up 1.6 percent ahead of the bell Tuesday.

For an analyst ratings summary and ratings history on JPMorgan click here. For more ratings news on JPMorgan click here.

Shares of JPMorgan closed at $35.32 yesterday.

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