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On Friday, JPMorgan analysts made a significant adjustment to their outlook on Fukuoka Financial Group (8354:JP) (OTC:FKKFF), downgrading the stock from Overweight to Neutral. Accompanying this change in rating, the price target was also reduced from JPY 5,360.00 to JPY 4,210.00.
The revision of the price target to JPY 4,210.00 is based on JPMorgan’s fiscal year 2026 earnings per share (EPS) estimate of JPY 495.6, applying a price-to-earnings (P/E) ratio of 8.5 times. This marks a decrease from the previous P/E ratio of 10 times and EPS estimate of JPY 536.2. JPMorgan anticipates that earnings trends for regional banks will continue to be generally favorable, but emphasizes that capital management will play a crucial role as a differentiator among these financial institutions.
Fukuoka Financial Group is expected to offer less in terms of shareholder returns compared to other major regional banks during its upcoming medium-term plan, which spans fiscal years 2025 to 2027. JPMorgan forecasts that the company will not engage in share buybacks and predicts a dividend payout ratio of 40%. This conservative approach to capital distribution is a key factor in the lowered P/E ratio and the subsequent downgrade of the stock’s rating.
Since fiscal year 2022, which marked the post-COVID period, Fukuoka Financial Group’s forward P/E has varied between 6 times and 11 times. JPMorgan’s target P/E of 8.5 times represents the median of this recent range, indicating a more neutral stance on the stock’s valuation. The adjustment reflects JPMorgan’s recalibrated expectations for Fukuoka Financial Group’s shareholder return policy and comparative performance within the regional banking sector.
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