While JPMorgan Stock Is Lagging The S&P, It Still Has Strength

Despite a 48% rise since the March 23 lows of this year, at the current price of around $117 per share we believe JPMorgan stock (NYSE: JPM) has more to go. JPM stock has increased from $79 to $117 off the recent bottom compared to the S&P 500 which increased almost 60%. The stock has underperformed the broader markets and is down 16% YTD. This is despite the fact that the recent quarters have seen higher revenues on a year-on-year basis – the top line has increased 7% to a consolidated figure of $62.1 billion for the last 2 quarters from $58 billion a year ago. That said, the earnings share a different story – they decreased 22% to a consolidated figure of $4.32 from $5.52 a year ago, mainly driven by a significant build-up in provisions for credit losses and is the main reason behind weak investor sentiment toward JPMorgan stock.

The company has seen some growth in revenue over 2018-2019, and its P/E multiple has also increased. We believe the stock is likely to see some upside in the near term despite the recent rally and potential weakness from a recession-driven by the Covid outbreak. Our dashboard Buy Or Sell JPMorgan Stock? provides the key numbers behind our thinking.

JPMorgan’s revenue increased 6% from $100.9 billion in 2018 to $115.6 billion in 2019, which translated into a 13% growth in adjusted net income over the same period. The net income benefited from a slight decrease in compensation cost as a % of revenue, improving the net income margin from 28.2% to 30%.

During the same period, the P/E multiple increased from just below 11x to around 13x. The multiple dropped in 2020 as the company has reported lower earnings over the last two quarters. While the company’s P/E is just below 11x now, there is an upside when the current P/E is compared to levels seen in the past years – P/E of 13x at the end of 2019.

Where Is The Stock Headed?

JPMorgan is a diversified financial services institution with operations spread across the world. The bank has delivered better than expected Q2 and Q3 results mainly driven by growth in Sales & Trading and investment banking segments. However, the same is not reflected in its earnings, as JPM has increased its provisions for credit losses to counter the risk of loan defaults on its sizable loan portfolio. On the flip side, the loan repayment capacity of the customers is tied to the economic slowdown. As the economy moves toward normalcy, the financial health of its customers is likely to recover, reducing the risk of loan defaults. Further, the bank is likely to re-start its share repurchase plan in the first quarter of 2021. Overall, JPMorgan stock is likely to see some upside in the near term.

The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again.  

What if you’re looking for a more balanced portfolio instead? Here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams