The market is too pessimistic about next year's lending profits. Asset repricing and growing customer deposits support a $66.39 twelve-month target without requiring share repurchases or easier capital rules.
Key points
- $6.04 a share is my 2027 earnings forecast, without share-count reduction.
- 2.94% lending margin in 2027 stays below management's stated destination.
- $66.39 a share is my twelve-month target; initiate Buy.
The call
The price assumes earnings lose momentum. At my valuation of 11 times annual earnings, today's shares imply 2027 earnings of $5.22 a share. Holding my other assumptions constant, that requires a 2.69% net interest margin, the lending spread after funding costs, versus September's 2.84%.
Where fee growth comes from ($ millions)Source: October 15, 2026 earnings release; reported quarterly fees before securities losses.
I expect lending profits to keep improving. Older loans and securities are renewing at higher yields, while customer deposits replace wholesale borrowing. My 2027 interest-income forecast is $19.1 billion after funding costs. The buyback pause explains caution, but resolving it is not necessary for my earnings forecast.
Valuation
| My valuation bridge | Estimate |
|---|
| 2027 revenue, standard accounting basis | $33.7 billion |
| 2027 operating expenses | $18.7 billion |
| 2027 credit-loss provision | $2.45 billion |
| 2027 diluted earnings | $6.04 a share |
| Twelve-month earnings multiple | 11 times |
| Twelve-month target | $66.39 a share |
The model assumes flat diluted shares and a 21.5% tax rate, with preferred dividends deducted. Eleven times earnings recognizes recurring customer fees but allows for capital constraints; my stress case produces approximately $53 a share, supporting Buy rather than Strong Buy.
The target depends on the lending marginOur 2027 estimates: $650 billion earning assets; other assumptions fixed; target at 11 times earnings.
Risks
- Deposit competition could absorb repricing benefits. Watch whether the lending margin reaches management's fourth-quarter objective while deposit costs rise.
- Higher bond yields could prolong the buyback pause. Watch capital including unrealized securities losses, not just the headline regulatory ratio.
- Fee growth could disappoint. Most incremental capital-markets revenue came from the acquisition, merchant fees barely changed, and a competitor's quarterly capital-markets fees fell sharply. Watch organic fees and compensation together.
What would change my mind
I would withdraw the Buy if the lending margin remains below 2.85% through June 2027 while annualized loan losses rise above 0.70%.