Here’s why JP Morgan sees more than 30% upside in the ANZ share price

Bank shares continue to record losses in 2022.

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Key points

  • ANZ shares continue their trend down today amid a period of extensive losses
  • The banking sector has been hit hard as investors re-evaluate the current macroeconomic pressures at play
  • In the last 12 months, the ANZ share price has slipped more than 24% into the red

The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price closed lower today, finishing 1.82% down at $21.60.

The banking sector has been hit hard these past two months. A number of macroeconomic headwinds look set to plague the industry – namely inflation and interest rate rises.

Exchange Traded Funds (ETFs) tracking the sector have booked extensive losses this year to date, such as the Vaneck Australian Banks ETF (ASX: MVB), down 12%.

Meanwhile, the S&P/ASX 200 Financials Index (ASX: XFJ) has tumbled almost 14% this year to date as well, as illustrated below.

TradingView Chart

Broker sees further upside for ANZ share price

Yet the team at JP Morgan are constructive on ANZ. The broker reiterated its overweight stance in a recent note.

The broker reckons ANZ will absorb any headwinds well and that some industry pressures are actually a net positive for the bank.

“Our overweight recommendation reflects ANZ’s reasonable [net interest margin] NIM leverage to rising interest rates on a broadly flat cost profile,” the JP Morgan team wrote.

NIMs are a critical measurement used in the evaluation of banking profits, based on net interest income (NII).

“Over the long term, we expect fewer headwinds than for some other peers due to ANZ’s lower exposure to competitive pressures on mortgage margin,” the broker added.

“In addition, we view valuation as attractive, given its significant [price to earnings] P/E discount to peers.”

Those at JP Morgan recently revised the price target down on ANZ, now valuing the company at $28.30 per share, down from $29 earlier.

At the current market price, this implies an upside potential of approximately 31%.

Meanwhile, 56% of brokers covering the stock have it rated as a buy, with 38% saying it’s a hold, according to Bloomberg data.

In the last 12 months, the ANZ share price has slipped more than 24% into the red.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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