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Stock Strategist

5 Key Questions for JPMorgan Investors

Outperformance is increasingly unlikely.

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The consensus view is that  JPMorgan Chase (JPM) will continue to appreciate over the next 12 months as rising rates boost earnings while expenses fall off. However, these factors are largely out of management's control--movements in short-term rates depend on an increasingly cautious Federal Reserve, and the costs of litigation and compliance are continuing to be forced upon the bank from outside. Also, many of JPMorgan's top managers have departed, and the firm is no longer successfully avoiding the blunders of its peers; incidents like the London Whale trades, the Comprehensive Capital Analysis and Review stumble, massive legal settlements, and seemingly endless allegations of wrongdoing recently led us to reduce our Stewardship Rating to Standard from Exemplary.

JPMorgan bulls still see the company as a bargain at just above book value, but we see limited upside in the shares. The firm has never achieved--and management is not targeting--profitability on par with Wells Fargo (WFC), U.S. Bancorp (USB), or PNC Financial (PNC). At the current stock price, we believe the risks facing the bank--regulation, competition, and even disruption--offset the potential for earnings and multiple expansion. Our fair value estimate remains $58 per share.

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Jim Sinegal has a position in the following securities mentioned above: ALLY. Find out about Morningstar’s editorial policies.