What happened
Shares of JPMorgan Chase (JPM 0.15%), the largest bank in the U.S. by assets, traded nearly 5% higher as of 12:52 p.m. ET today after a Wall Street analyst upgraded the stock this morning.
So what
On Friday, JPMorgan Chase reported $3.12 of earnings per share on managed revenue of $33.5 billion for the third quarter of the year, both numbers that topped expectations.
Credit quality among consumers still looked quite healthy in the quarter, and the bank was buoyed by surging net interest income (NII), the profit the bank makes on loans and bonds after funding those assets. Furthermore, management raised its full-year guidance for NII due to the higher-interest-rate environment, which boosts the yields on many of JPMorgan's loans and bonds.
This morning, Bank of Montreal analyst James Fotheringham maintained a "market perform" rating on the stock and raised his price target on JPMorgan from $149 per share to $158, implying significant upside with the company currently trading less than $117 per share.
Fotheringham cited the strong NII and the bank's ability to drive "meaningful operating leverage," which is when a company grows revenue faster than expenses. Fotheringham believes the operating leverage can continue and thinks the bank could start buying back stock again early next year. JPMorgan had to pause share repurchases earlier this year in order to build capital to meet new regulatory requirements.
Now what
Given the conditions right now, I thought JPMorgan Chase reported a very solid quarter of earnings, and I would also expect NII to continue to improve due to the higher-rate environment. Yes, there could be a more severe recession next year, but I do believe the bank is well equipped to navigate a more difficult environment.
