Is JPMorgan Stock Attractive At $110?

by Trefis Team
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JPMorgan Chase
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Having gained more than 40% of its value since March 23, JPMorgan’s stock (NYSE: JPM) may yet grow some more. Our belief stems from the fact that JPMorgan’s stock remains about 20% below the level seen in late 2019, and its current P/E multiple is at the lower end of the spectrum seen over the recent years. Our dashboard Why JPMorgan Stock moved 74.3% between 2016 and 2019 provides the key numbers behind our thinking, and we explain more below.

Some of this rise of the last three years is justified by the roughly 21% growth seen in JPMorgan’s revenues over 2016 to 2019, which translated into a 53% increase in Net Income. The higher growth in the net income figure was primarily driven by lower compensation cost (as a % of revenues) as well as a reduction in loan provisions – which helped improve the net income margin from 23.6% in 2016 to 30% in 2019. EPS growth was even higher at 72% thanks to the added benefit of huge share buybacks. Specifically, the banking giant has invested about $59.4 billion in stock repurchases in the last three years, resulting in about 11% lower outstanding shares. While JPMorgan did have about $24 billion in cash & due from banks as of the last report, the bank has suspended its share repurchase program till the second quarter of 2020 due to the coronavirus crisis.

Finally, JPMorgan’s P/E ratio has remained around 13x at the end of both FY 2016 and FY 2019. While JPMorgan’s P/E is down to around 11x (slightly higher than the lowest level seen over the recent years), there is a likely upside for JPMorgan’s multiple when compared to levels seen over recent years.

How Is Coronavirus Impacting JPMorgan’s Stock?

Due to widespread panic and lockdowns in recent months, there is a drop in consumer demand as people are refraining from discretionary expenditures. Further, the economic slowdown can cause serious losses for businesses and individuals alike, impacting their loan repayment capability. This could result in sizable losses for the bank, as it has a substantial loan portfolio of consumer and commercial loans. Further, as the economic condition deteriorates, it would become expensive for the bank to fund its operations, negatively impacting all its businesses.

However, if there are significant improvements by the time Q2 results are announced, the company’s stock could see some positive movement. Further, JPMorgan’s YTD decline of 17% means that the company’s stock has outperformed its peer U.S Bancorp (-26%), though both the banks have underperformed the S&P 500 (-1%) over this period. This lends support to our belief that the stock is likely to see some improvement in price in the near- to mid-term.

Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. It complements our analyses of the coronavirus outbreak’s impact on a diverse set of JPMorgan’s peers. The complete set of coronavirus impact and timing analyses is available here.

While JPMorgan’s stock has some growth potential, there might be an even bigger opportunity in Citigroup’s stock.

 

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