On Nov 28, 2014, we issued an updated research report on JPMorgan Chase & Co. (JPM). We believe that the company’s initiatives to streamline operations will go a long way in supporting its financials, as revenue growth is expected to remain subdued in the near term.
With an aim to offset the macroeconomic and fundamental pressures, JPMorgan has been pruning its businesses. The company intends to rationalize and consolidate its branch network with an increased focus on automation. Consequently, the company expects branch workforce to fall 20% in 2015 from the 2011 level.
Further, JPMorgan is divesting its non-core operations and plans to concentrate more on traditional banking activities. All these initiatives will likely lead to cost savings. Management anticipates operating expenses (excluding corporate litigation and foreclosure-related costs) to come above $58.0 billion in 2014, down from $60.0 billion recorded in 2013.
On the flip side, continued pressure on revenue remains a major concern. We believe that top-line growth will be muted owing to a still low interest rate scenario and sluggish economic recovery. Additionally, weak mortgage banking income will hamper growth in the near term. Also, we believe that with the enforcement of new banking regulations, there will be additional pressure on fee income.
Owing to persistent top-line pressure, analysts are bearish on JPMorgan’s future prospects. Hence, over the last 60 days, the Zacks Consensus Estimate fell nearly 1% for both 2014 and 2015 to $5.50 and $6.01 per share, respectively.
JPMorgan currently carries a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Some better-ranked banking stocks include Preferred Bank (PFBC), Western Alliance Bancorporation (WAL) and State Street Corporation (STT). While Preferred Bank and Western Alliance sport a Zacks Rank #1 (Strong Buy), State Street holds a Zacks Rank #2 (Buy).
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