Market Pundits Expect Some Pressure on JPMorgan Chase (JPM)

Although, JPMorgan Chase (NYSE:JPM) earned $26.5B in the last twelve months, the highest earnings ever by any U.S. bank, the company’s lower than expected outlook for net interest income hasn’t impressed investors. Consequently, several major analysts expect its share price to remain under pressure in the following two quarters of the year.

Its net interest income for the second quarter increased 8% to $12.5B, just shy of the consensus estimate for the double-digit growth. In addition, the bank expects its net interest income to enlarge by $4 billion this year, compared to the recent outlook for the growth of $4.5 billion.

Moreover, JPM also expects its core loans to increase by 8.5% this year, significantly lower from the earlier forecast for the growth of 10%.

Steven Chubak said, “While 2Q results are encouraging, we expect shares to come under some pressure, as the company guided to lower NII for FY’17 as well as weaker core loan growth.”

Higher costs have also added to negative sentiments, as the company expects its costs to increase by 6.4% to $14.51B this year, compared to the past forecast for $13.64B. JPM said expenses were expected to rise this year to fund investments and growth.

Its stock price declined close to 1% after reporting lower than expected outlook for the second half this year. Following year to date rally of 6.91%, its stock price is currently trading around $92 a share. Its stock looks overvalued considering its book value per share of $66.05 and tangible book value per share of $53.29. Furthermore, JPM’s higher price to book and price to sales ratios of 1.9 and 3.6, compared to the industry average of 1.1 and 2.8, clearly suggests that the stock is overvalued. Overall, waiting for a price correction before jumping into this stock appears like a good strategy.

The author does not own JPM shares.

Alexander is an analyst for who specializes in index and commodity trading. His outlook is usually near-term to medium-term. He has over 10 years of experience in the financial industry and began his career at the dealing desk. Alexander holds a Bachelor’s degree in Economics from University of Delaware.