Price Correction On The Cards For JPMorgan’s Stock?

JPMorgan Chase (NYSE:JPM) is the largest lender in the U.S. which provides consumer banking, commercial banking, credit & debit cards, investment banking, treasury, wealth management and sales & trading services to its clients. Trefis has a price estimate of $124 for JPMorgan’s stock which is slightly lower than the ~$127 level it has been hovering around over the last few days. While JPMorgan’s earnings for the third quarter were better than expected, we believe that near-term headwinds will weigh on the bank’s performance over subsequent quarters. The Q3 earnings beat can be attributed to a 7% y-o-y growth in Consumer Banking followed by 6% increase in Corporate & Investment Banking revenues, partially offset by a 3% y-o-y decrease in Commercial Banking segment.

We have detailed the key components of JPMorgan’s Valuation in an interactive dashboard, along with our forecast for the full year 2019. Additionally, you can see more Trefis data for financial companies here.

The stock price estimate can be divided into 4 factors: Stock Price = (Total revenue x Net income margin / No. of shares outstanding) x P/E Ratio

#1 Estimating JPMorgan’s Total Revenues

• In 2019, we expect Total Revenues to be $114.7 billion, 5% more than 2018.
• Consumer & Community Banking (CCB) segment is expected to witness a 6% growth in revenues due to an increase in Net Interest Income, as strong growth in Mortgages and Card balances should mitigate the impact on net interest margin.
• Further, Commercial Banking revenues would jump by 4% as compared to 2018.
• However, expected decline of 1% in corporate & investment banking would partially offset the impact on top line. This decrease can be attributed primarily to its sales & trading division. Sub-par figures for the first half of the year should weigh on its full-year performance. Advisory & Underwriting revenues would remain at the same level as the previous year.

Our interactive dashboard for JPMorgan details what is driving changes in revenues of JPMorgan’s individual revenue streams along with our forecast for the next three years?

#2 Deriving JPMorgan’s Net Income Figure

• JPMorgan is expected to have a Net Income of $32.3 billion in 2019, which is 5% more than the previous year.
• This can be attributed to higher revenues, partially offset by marginally lower net income margin.
• Although the EBT figure is expected to reach $42.1 billion in 2019  (up 3% as compared to the previous year) despite revenues improving 5% because of a reduction in the EBT margin
• Further, we expect the effective tax rate to slightly reduce in 2019.

#3 Deriving JPMorgan’s EPS Figure

• JPMorgan has regularly invested in share repurchase to boost shareholder returns. Its share repurchase is likely to touch $24.6 billion for the full year 2019.
• This would enable the bank to report an EPS figure of $10.12 in 2019.

#4 Estimating JPMorgan’s Share Price

• We expect JPMorgan to achieve earnings of $10.12, which coupled with our forward P/E multiple of 12.3x works out to a price estimate of $124.
• Details about how JPMorgan’s P/E multiple compares with peers Bank of America, Citigroup and Goldman Sachs is available in our interactive dashboard.

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