How Long Will It Take For JPMorgan To Reach A $500 Billion Market Cap?

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JPM: JP Morgan Chase logo
JPM
JP Morgan Chase

Having emerged from the economic downturn of 2008 as the largest bank in the U.S., JPMorgan Chase has rapidly grown across banking services to become a core player in the country’s retail banking, investment banking, transaction banking, custody banking and asset management spaces over the years. Taken together with favorable legislative changes (like the recent tax act) and a strong economic outlook, this has helped JPMorgan’s market capitalization swell from less than $200 billion in mid-2013 to nearly $400 billion now.

Despite this strong gain, JPMorgan’s stock presents a sizable upside over coming years due to the combination of improved interest rates and a softer regulatory environment. We believe that the diversified banking giant is likely to see its market capitalization figure cross the $500-billion mark in the next 2-3 years.

We arrive at our estimate for JPMorgan’s market capitalization over coming years through five simple questions about the bank’s core metrics captured in our interactive model. The metrics we forecast in the model are:

  • Revenue Growth Rate: JPMorgan’s revenues grew by 4.1% in 2017 – a solid figure given that the bank’s revenues for the year were just shy of $100 billion, and a 4.1% increase translates to revenue growth of nearly $4 billion. The gains were primarily due to improved net interest revenues – mitigated to an extent by poor securities trading revenues over the second half of the year and also by weak mortgage industry conditions for the year. As the Fed continues to hike interest rates, we expect net interest margin gains to continue to drive the top line over the coming years. At the same time, the bank will also benefit from a dilution in the Volcker Rule, which will primarily benefit trading revenues. Because of this, we expect JPMorgan’s revenues to grow at ~4.5% annually over 2018-20 – pointing to revenues in excess of $113 billion for 2020.
  • Income Margin: JPMorgan’s income margin (ratio of net income to revenues) fell from an average of almost 24% over 2015-16 to 22.7% in 2017, mostly due to one-time charges related to the tax act. We believe that the income margin for coming years will receive a boost from lower tax rates, and estimate an income margin figure of ~24.5% over 2019-20. Taken together with the revenue figure of $113 billion for 2020, this indicates net income of nearly $28 billion for the year.
  • P/E Ratio: A favorable environment for the U.S. banking industry and a strong outlook for the country’s economy has helped JPMorgan’s P/E ratio improve considerably over recent years – jumping from 10.8 in 2015 to 16.2 in 2017. As a dominant player across banking services, we believe that JPMorgan will outperform its peers over coming years, as its considerably diversified business model will allow it to cross-sell its products and services better to customers. Because of this, we believe that a P/E ratio of 18 is appropriate for the bank over the coming years.
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Taking all these metrics together results in an estimated value of around $500 billion for 2020, based on our estimated revenue of $113 billion, 24.5% earnings margin and 18 P/E multiple.

Don’t agree with our estimates for JPMorgan’s value? You can come up with your own estimate by answering a few simple questions on our dashboard

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