First Hawaiian stock dips after J.P. Morgan lowers to Underweight

First Hawaiian (NASDAQ:FHB) stock retreated 3.3% in Monday morning trading after J.P. Morgan downgraded the regional bank to Underweight from Neutral on the expectation that its profitability will trend lower through the end of next year, driven by potential Fed rate cuts.

Although the Q2 results were highlighted by lower expenses and a better-than-forecast expansion in net interest margin, analyst Steven Alexopoulos sees "more headwinds than tailwinds for the company, particularly with the Fed likely to begin cutting rates in 2H24 and into 2025," he wrote in a note.

With the lender's Q3 NIM already expected to trend flat sequentially, coupled with its slightly asset-sensitive balance sheet, "NIM should decline in the quarter that a rate cut actually occurs," the analyst said.

"While potential offsets to this NIM pressure could be deposit costs moving lower and loan growth returning in earnest, we do not see either of these factors as being enough of a 'needle mover' versus peers to further inflate the already steep premium valuation of the stock."

JPM's Underweight rating on (FHB) compares with the SA Quant system rating and the average Wall Street analyst rating, both at Hold.