As Wall Street gears up for the Q2 earnings season, all eyes are on three major banks set to report their results on Friday, July 12: JPMorgan Chase & Co. (JPM  ), Citigroup Inc. (C  ), and Wells Fargo & Co. (WFC  ).

Wolfe Research recently released a comprehensive analysis of the upcoming bank earnings, highlighting potential winners and underperformers in the sector.

Steven Chubak, analyst at Wolfe Research, shared updated preferences on bank stocks in a detailed note this past Sunday.

At the start of the year, Wolfe Research was bullish on banks benefiting from a prolonged period of high-interest rates, particularly JPMorgan. However, with the Federal Reserve likely to begin easing rates, the outlook has shifted.

Wolfe Research's Top Picks

Chubak's revised strategy now emphasizes banks and brokers with unique Net Interest Income (NII) advantages and attractive valuations relative to growth. His top picks include Bank of America (BAC  ), Charles Schwab Corp. (SCHW  ), and LPL Financial Holdings Inc. (LPLA  ).

  • Bank of America: Expected to benefit from asset repricing and liability optimization, with a projected 13% upside to 2026 earnings estimates.
  • Charles Schwab: Favored for its strong seasonality in the second half of the year and significant upside potential of approximately 35% to 2026 consensus estimates.
  • LPL Financial: Highlighted for its widening organic growth gap compared to peers and benefits from a steeper yield curve.
Chubak emphasizes that retail brokers remain a preferred sub-sector within the rate-sensitive coverage due to better fundamentals and seasonally stronger performance in the second half of the year. However, he remains cautious on certain names due to evolving market dynamics and competitive pressures.

Here's a breakdown of Wolfe Research's top picks and their potential upside:

Bank/ Previous Rating/ New Rating/ Old PT/ New PT/ Current PriceUpside/Downside

  • Bank of America/ Outperform/ Outperform/ $42/ $49/ $40.4121%
  • Charles Schwab Corp./ Outperform/ Outperform/ $82/ $90/ $73.2023%
  • LPL Financial Holdings Inc./ Outperform/ Outperform/ $326/ $347/ $276.0126%
Wolfe Research's Downgrades

The report also includes some notable downgrades:

  • JPMorgan Chase (JPM): Downgraded to Peer Perform from Outperform due to concerns over its exposure to rate cuts and its stretched valuation following a significant rally. Chubak notes that while JPMorgan has outperformed significantly, the stock's valuation now appears stretched, and potential rate cuts could impact its NII.
  • Raymond James Financial (RJF  ): Downgraded to Peer Perform due to emerging risks affecting its growth, including net new asset headwinds and compensation pressures.
  • State Street Corp. (STT  ): Downgraded to Underperform as it faces significant downside risk to 2026 consensus estimates, despite positive EPS revisions.
Here's a detailed table summarizing the downgrades:

Bank /Previous Rating / New Rating / Old PT / New PT / Current PriceUpside/Downside

  • JPMorgan Chase /Outperform /Peer Perform /$216 /$226 /$204.7910%
  • Raymond James Financial /Outperform /Peer Perform /$140 /$135 /$119.5113%
  • State Street /Peer Perform /Underperform /$81 /$73 /$73.72-1%