JPM, BAC, or WFC: Which Bank Stock Could Generate Better Returns?

Stocks of J.P. Morgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), and Wells Fargo (NYSE:WFC) have risen over the past month in reaction to solid Q3 results. That said, these three bank stocks are still in the red year-to-date. Bearing that in mind, we used TipRanks’ Stock Comparison Tool to pick the bank stock that Wall Street expects to generate higher returns.  

Banks are benefiting from higher net interest income (NII) fueled by rising interest rates. Nonetheless, Q3 results reflected weakness in the investment banking and home lending businesses. Investors are concerned that rising interest rates might push the economy into a recession and lead to higher bad debts.

JPMorgan Chase (JPM) Stock

JPMorgan Chase, the largest U.S. bank based on assets, delivered upbeat third-quarter results thanks to a 34% rise in net interest income to $17.6 billion due to higher interest rates. However, the bank’s investment banking fees fell 47% due to a slump in IPO activity and the issuance of debt and equity. Also, home lending revenue declined as high mortgage rates impacted volumes.

Despite an adverse economic backdrop, JPMorgan expects NII of nearly $19 billion in Q4 and about $66 billion in full-year 2022. The bank is on track to lift its Fed-mandated requirements for a common equity tier one (CET1) ratio of 13% in early 2023, up from the targeted 12.5% in Q4. Additionally, it expects to resume stock repurchases early next year.

Is JPM a Buy Right Now?

UBS analyst Erika Najarian feels that JPMorgan’s confidence in meeting its CET1 target should renew the market’s faith in the bank’s potential to manage its balance sheet while delivering strong revenue growth. Following the results, Najarian raised her price target to $135 from $124 and reaffirmed a Buy rating.

Overall, Wall Street is cautiously optimistic about JPMorgan Chase stock, with a Moderate Buy consensus rating based on seven Buys, four Holds, and one Sell. The average JPM price target of $140.33 implies a modest upside potential of 2.8%.

Bank of America (BAC) Stock

Bank of America, the second-largest U.S. bank by assets, generated NII of $13.8 billion (up 24%) in Q3 and surpassed the Street’s revenue and earnings estimates. However, the bank reported a 46% decline in its investment banking fees due to weaker underwriting activity.   

Meanwhile, Bank of America is seeing solid expansion in its customer base. In Q3, the bank added 418,000 net new consumer checking accounts, marking its highest additions since Q3 2008.

Looking ahead, BAC expects Q4 NII to be at least $1.25 billion higher than Q3. During the Q3 conference call, the bank noted that its customer delinquencies are well below pre-pandemic levels. That said, it is carefully monitoring the early-stage card delinquencies as they rise modestly. Note that a recent SEC filing indicated that BAC’s credit delinquency rate increased to 0.98% in October from 0.92% in September, reflecting the impact of inflation on consumers.

What is the Forecast for Bank of America Stock?

Citigroup analyst Keith Horowitz downgraded Bank of America stock to Hold from Buy but retained the price target at $40. The analyst feels that NII tailwinds from higher interest rates are already priced in the stock.

Horowitz added, “We see downside risk to 2023 NII largely from a catch up on deposit repricing and noninterest bearing deposit outflows outweighing the benefits of fixed rate assets repricing.”

Wall Street’s Moderate Buy consensus rating for Bank of America stock is based on nine Buys and four Holds. The average BAC stock price prediction of $40.42 suggests 7.5% upside potential from current levels. 

Wells Fargo (WFC) Stock

Wells Fargo has been caught up in several investigations and scandals in recent years, including the opening of millions of bogus accounts by its workers. Recently, WFC disclosed that it is in “resolution discussions” with the Consumer Financial Protection Bureau (CFPB) regarding multiple investigations and inquiries, including matters related to automobile lending, consumer deposit accounts, and mortgage lending.

Coming to its recent performance, Wells Fargo, which has higher exposure to the mortgage business than its peers, reported a 52% decline in its home lending revenue in Q3. Nonetheless, revenue beat expectations, with NII rising 36% to $12.1 billion. However, earnings declined as the bank recorded charges of $2 billion related to litigation, customer remediation, and regulatory matters.

Wells Fargo stated that its top priority is to “implement an appropriate risk and control framework” and cautioned that certain issues still remain that could result in significant additional expenses in the coming quarters.

Is Wells Fargo Stock a Buy or Sell?

Reacting to Wells Fargo’s recent update, Citigroup’s Horowitz stated that the ongoing talks between Wells Fargo and federal banking regulators are “incremental positive news” for the bank.

Horowitz stated, “While timing is still uncertain on when the CFPB consent orders may be lifted, the new disclosure does provide some level of comfort that things are moving forward on the regulatory front.” Horowitz reiterated a Buy rating on WFC stock.

All in all, the Street’s Moderate Buy consensus rating on Wells Fargo stock is based on eight Buys and five Holds. At $52.33, the average WFC stock price target implies nearly 11% upside potential. 

Conclusion

Wall Street is cautiously optimistic about bank stocks despite the favorable impact of rising interest rates on NII. There are concerns about the effect of a possible economic downturn on bad debts and delinquencies. The aforementioned banks recorded higher provision for credit losses in the third quarter.

Wells Fargo stock has declined 1.4% year-to-date but has fared better than JP Morgan Chase and Bank of America, which have fallen 13.8% and 15.5%, respectively. Currently, analysts see slightly higher upside potential in Wells Fargo stock than the other two bank stocks.

Disclosure