Buy JP Morgan Chase shares on the dip because it is a ‘best-in-class’ bank, KBW says

  • Keefe, Bruyette & Woods raises its rating to outperform from market perform for J.P. Morgan Chase shares, citing the bank stock's attractive valuation.
  • "We believe the recent selloff in shares of JPM has created an opportunity for investors to move up the quality spectrum and add a best-in-class bank at a reasonable valuation," KBW says.
Jamie Dimon, chief executive officer of JPMorgan Chase & Co.
Andrew Harrer | Bloomberg | Getty Images
Jamie Dimon, chief executive officer of JPMorgan Chase & Co.

The decline in J.P. Morgan Chase shares this month is an overreaction, according to one Wall Street firm.

Keefe, Bruyette & Woods raised its rating to outperform from market perform for the bank, citing the stock's attractive valuation.

"We believe the recent selloff in shares of JPM has created an opportunity for investors to move up the quality spectrum and add a best-in-class bank at a reasonable valuation," analyst Brian Kleinhanzl wrote in a note to clients Monday. "We believe the market is pricing in a scenario for bank stocks, and JPM, that is overly pessimistic given our expectations for the macro environment near term."

Kleinhanzl initiated a $127 price target for J.P. Morgan Chase shares, representing 14 percent upside to Monday's close.

The bank's stock is down nearly 5 percent from its high on Jan. 29 through Monday. Its shares rose 0.6 percent Tuesday.

The analyst said J.P. Morgan Chase is valued at 11.3 times his 2019 earnings-per-share estimate versus 10.9 times for the median large cap bank stock. He believes its valuation is attractive given its strong fundamentals.

"The fundamental outlook for JPM is still solid and higher volatility and higher rates could result in an upward bias to forward earnings barring a dramatic change in deposit betas, loan growth, or credit conditions," he wrote.

— CNBC's Michael Bloom contributed to this story.