An equity analyst from Lehman Brothers has raised his price target for J.P. Morgan Chase & Co., citing good revenue prospects for the banking giant.
Henry Chip Dickson says Morgan-Chase's revenues could rise 7% this year despite "very little balance sheet growth." It should have "more free cash flow than companies more dependent on spread income," he wrote in a research note.
Mr. Dickson raised his target for the bank's stock to $65, from $60, and reiterated his "strong buy" rating on the company.
He wrote in a report issued Monday that he expects earnings per share for the nation's larger banking companies to grow an average of 10% despite increasing competition from "both traditional and nontraditional sources." However, the range could fluctuate to between 4% and 16%, depending on the income range, Mr. Dickson wrote.
His report said banks' revenue growth will be watched especially closely this year and well rewarded by investors.
J.P. Morgan Chase rose 93 cents, or 1.72%, to $55.12 Monday.
Financial stocks as a group rallied Monday, with investment banking and money center bank stocks moving higher in anticipation of a boost in underwriting business that could follow any further easing of interest rates. The Federal Open Market Committee meets this week.
The American Banker index of the top 50 banks gained 0.62%, and its index of 225 banks 1.48%, while the Standard & Poor's 500 index and the Nasdaq composite index rose 0.68% and 2.04% respectively.
Adam Lewis, a trader at Keefe, Bruyette & Woods Inc., said the uptick in certain stocks was also attributable in part to relief: Credit quality continues to be a problem for the banking industry, but it is not as big a problem as had been expected.
"We hear only positive news lately," he said.
Citigroup Inc. rose 1.83%, to $56.20, and Lehman Brothers Holdings Inc. 5.18%, to $85.72.
However, profit-taking hurt superregionals; FleetBoston Financial Corp. fell 2.56%, to $42.20, and Wells Fargo & Co. 0.72% to $51.13.
Shares of government-sponsored enterprises suffered. The GSEs are under scrutiny from Phil Gramm, head of the Senate Bank Committee, who is looking into whether they are unfairly subsidized. Fannie Mae fell 4.57%, to $72.95, and Freddie Mac 3.15%, to $60.05.
Elsewhere in the market, Holly M. Clark, an analyst at BB&T Capital Markets, lowered her rating on Centura Banks Inc., of Rocky Mount, N.C., to "sell" from "hold."
She said her downgrading of Centura was a reaction Royal Bank of Canada's deal to buy Centura for $2.3 billion. Ms. Clark, who does not follow Royal Bank, said the deal, which was announced Friday, makes sense. But she added that, since Centura had a good run investors would be wise to take some profits and invest in more undervalued names such as First Financial Group Inc., a Charlotte-based thrift that she rates "strong buy."
Centura was up 29 cents, or 0.54%, to $53.79.