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Investing.com -- Baird downgraded shares of JPMorgan Chase & Co. (NYSE:JPM) and Bank of America Corp (NYSE:BAC), citing limited upside amid elevated valuations in the large-cap banking group, in a note dated Friday.
JPMorgan was lowered to “underperform” from “neutral” with a revised price target of $235, down from a market price of $288.75 as of June 26.
Analysts said the stock’s current valuation, trading at approximately 2.9x tangible book value (TBV), 18.2% capitalization-to-assets, and 9.5x pre-provision net revenue (PPNR), implies a return on assets (ROA) exceeding 1.50% in perpetuity, despite 2026 consensus ROA forecasts of just 1.21%.
Baird acknowledged JPMorgan’s strong market position, solid capital base, and consistent outperformance but said expectations have become too optimistic.
Even using aggressive assumptions, including a hypothetical $70 billion buyback to reach a 12% CET1 ratio, the bank’s pro forma return on tangible common equity (ROTCE) would be around 24.5%, equating to a $263 per share value based on Baird’s regression model.
“Again, this is simply a view that returns in JPM shares will likely not be what they’ve been the last several years at these valuation levels,” the analysts said.
Bank of America was downgraded to “neutral” from “outperform,” with a price target of $52.
The stock recently closed at $47.46. Baird had upgraded BAC in April, believing the market was undervaluing its earnings power.
Since then, shares have appreciated, and the brokerage now sees the stock trading close to 10x normalized EPS and discounting a 1% ROA, above 2025 and 2026 consensus expectations.
BAC’s capitalization-to-assets stands near 11%, and the valuation appears to reflect improving net interest margins and a stronger capital markets backdrop.
Baird remains favorable on the Bank of America franchise but sees the risk/reward as balanced at current levels.
On the broader sector, the analysts said U.S. banks are approaching fair value. The group trades at about 6x forward PPNR, in line with post-crisis averages, but with notable dispersion.
Mega-cap banks appear modestly overpriced, while regional banks look undervalued on a relative basis. Baird favors select regional names given lower investor expectations and better valuation support.
The downgrades reflect a broader view that recent strength in the mega-cap bank group has outpaced earnings outlooks. “We understand the optimism,” Baird wrote, “but we still believe they (valuations) are one of the primary drivers of forward returns.”