Wells Fargo, JPMorgan Are This Analyst's Tax Cut Plays

The new 21-percent corporate tax rate is galvanizing players from tech to pharma to energy.

And it’s driving at least one analyst to ”keep the chips on the table” in the financial sector.

The Rating

Buckingham Research Group analyst James Mitchell upgraded Wells Fargo & Co WFC and JPMorgan Chase & Co. JPM to Buy and raised their respective price targets from $57 to $75 and from $100 to $135.

Mitchell downgraded Lazard Ltd LAZ to Neutral and maintained a $59 price target.

All other banks in his coverage saw median price target increases of 18 percent.

The Thesis

With the exception of Lazard, where Mitchell views growth as being stunted by weakening restructuring revenues, U.S. banks are expected to leverage a significantly lower tax rate, accelerated global growth and higher interest rates offset by modest repatriation charges. (See the analyst's track record here.) 

The tax cut is forecast to improve large-cap earnings per share by 12 percent and mid-cap EPS by 18 percent — and Mitchell considers these figures conservative.

“With valuations in line with long-term average multiples, we believed the market was not pricing in upside from tax reform, deregulation or materially higher economic growth/interest rates,” Mitchell said in a Thursday note.

This year, the group performed in line with the S&P 500 despite outperforming in EPS growth, and Mitchell estimates 24-percent average upside to the stocks.

Citigroup Inc C, Morgan Stanley MS, Evercore Inc EVR and Raymond James Financial, Inc. RJF boast the most near-term upside, according to Buckingham. 

Price Action

At the time of publication, Lazard was trading at $51.04, JPMorgan at $107.51 and Wells Fargo at $61.26. 

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