Santander's Valuation Sends JPMorgan To Sidelines, But Analyst Sees Positive Long-Term Catalysts

After hitting a low of $15.75 in April, Santander Consumer USA Holdings Inc SC shares have staged a decent rebound.

The bank stock was hit with a downgrade from JPMorgan Monday, witht he sell-side firm citing limited upside potential relative to its price target after the rally. 

The Analyst

Analyst Richard Shane downgraded Santander Consumer from Overweight to Neutral and set a $20 price target.

The Thesis

Santander Consumer's near- and longer-term catalysts are largely reflected in the stock price, Shane said in a Monday note. (See the analyst's track record here.) 

In the long run, Shane forecast an improvement in the operating environment in subprime auto lending amid a stabilization in user car prices and an abatement in lender competition.

Santander's Fed-approved dividend and share repurchase authorization reflect its ability to organically generate capital, the analyst said. 

JPMorgan's $20 price target for the shares is based on a 7.5 times multiple on a 2020 earnings per share estimate of $2.64.

"Our target multiple reflects a balance between a moderation in investors' risk tolerance at this stage of the cycle, countered by better alignment with the parent company's management and progress in the company's efforts to improve compliance and its capital return program," Shane said. 

The Price Action

Santander Consumer shares have gained about 5 percent year-to-date.

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