After Q3 Beat, Is JPMorgan Stock Fairly Priced?

+4.74%
Upside
132
Market
138
Trefis
JPM: JP Morgan Chase logo
JPM
JP Morgan Chase

JPMorgan’s stock (NYSE: JPM) has lost 16% YTD, as compared to the 17% decline in the S&P500 over the same period. Further, the stock is currently trading at $133 per share, which is 4% below its fair value of $138 – Trefis’ estimate for JPMorgan’s valuationThe bank outpaced the consensus estimates of revenues and earnings in the third quarter of 2022. It posted net revenues of $32.7 billion – up 10% y-o-y, primarily driven by a 14% rise in consumer & community banking, a 21% jump in commercial banking, and a 6% growth in asset & wealth management units. The segments mainly benefited from an increase in net interest income (NII) driven by improvement in interest rates. Notably, the total NII increased 34% y-o-y to $17.5 billion. On the flip side, the top line was somewhat offset by a 4% y-o-y drop in the corporate & investment bank unit. The division suffered due to a 43% decline in the investment banking business, followed by an 11% decrease in equity trading revenues. Overall, despite positive revenue growth, the adjusted net income decreased 18% y-o-y to $9.26 billion. It was because of an unfavorable increase in provisions for credit losses from -$1.53 billion to $1.54 billion.

The bank’s top line grew 2% y-o-y to $94.15 billion in the first nine months of 2022. While the NII rose by 20% y-o-y, the gains were almost offset by an 11% drop in the noninterest revenues. The noninterest revenues mainly suffered due to a decrease in investment banking fees, investment securities losses, and card income. Altogether, the adjusted net income decreased 31% y-o-y to $25.3 billion, primarily because of a significant jump in provisions for credit losses.

Moving forward, we expect the NII to continue its growth momentum over the subsequent quarters. We estimate JPMorgan’s revenues to touch $128.9 billion in FY2022. Additionally, JPM’s adjusted net income margin is likely to decrease to around 27%, leading to an adjusted net income of $35.2 billion and an annual EPS of $11.73. This coupled with a P/E multiple of just below 12x will lead to a valuation of $138.

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 Returns Nov 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 JPM Return 6% -16% 54%
 S&P 500 Return 2% -17% 77%
 Trefis Multi-Strategy Portfolio 4% -19% 221%
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[1] Month-to-date and year-to-date as of 11/17/2022
[2] Cumulative total returns since the end of 2016

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