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JPMorgan Reiterated at Neutral

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On Aug 29, 2013, we reaffirmed our long-term recommendation on JPMorgan Chase & Co. (JPM - Free Report) at Neutral. This was based on the company’s strong second-quarter results, which surpassed the Zacks Consensus Estimate. However, higher operating expenses remain a cause of concern.

Why Neutral?

JPMorgan’s second-quarter earnings came in at $1.60 per share, substantially beating the Zacks Consensus Estimate of $1.44. Results benefited largely from improved top line and significantly lower provision for credit losses, partially offset by a rise in non-interest expenses.

Moreover, the Zacks Consensus Estimate for 2013 advanced 3.7% to $5.95 per share over the last 60 days. Similarly, for 2014, the Zacks Consensus Estimate increased 2.2% to $6.14 per share, over the same time-frame. JPMorgan currently carries a Zacks Rank #3 (Hold).

The key reason behind JPMorgan’s stable earnings amid the ongoing sluggish economic recovery is its business diversification. Moreover, the company is an asset for yield-seeking investors due to its price appreciation and steady capital deployment activities. Further, the company’s asset quality continues to improve and its balance sheet position remains strong.

However, JPMorgan’s top-line growth is expected to slacken in the upcoming quarters, owing to weak trading revenues and net interest margin contraction. Additionally, with the thrust of new banking regulations, there will be pressure on fees and loan growth is likely to remain weak. Further, stricter capital requirements are expected to considerably lower JPMorgan’s flexibility with respect to its business investments.

Other Banks Worth Considering

While we prefer JPMorgan, other better performing banks include BankUnited, Inc. (BKU - Free Report) , Wells Fargo & Company (WFC - Free Report) and The PNC Financial Services Group, Inc. (PNC - Free Report) . While BankUnited carries a Zacks Rank #1 (Strong Buy), Wells Fargo and PNC Financial carry a Zacks Rank #2 (Buy).

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