Is JPMorgan Stock Fairly Priced?

-6.83%
Downside
205
Market
191
Trefis
JPM: JP Morgan Chase logo
JPM
JP Morgan Chase

JPMorgan’s stock (NYSE: JPM) has lost 5% YTD, as compared to the 2% rise in the S&P500 over the same period. Further, the stock is currently trading at $126 per share, which is 20% below its fair value of $157 – Trefis’ estimate for JPMorgan’s valuationThe bank posted better-than-expected results in the fourth quarter of 2022. It reported net revenues of $34.5 billion – up 18% y-o-y, primarily driven by a 29% rise in consumer & community banking (CCB) and a 30% growth in commercial banking (CB) segments. Both businesses mainly benefited from improvement in the net interest income (NII) driven by higher interest rates and loan growth. Notably, the net interest income of CCB and CB rose by 46% y-o-y and 74%, respectively. That said, the top line was somewhat offset by a 9% drop in the corporate & investment banking division which suffered from a 57% decline in the investment banking revenues. On the cost front, the provisions for credit losses witnessed an unfavorable increase in the quarter from -$1.29 billion to $2.29 billion. It reduced the positive impact of growth in the top line, resulting in a net income of $11 billion – up 6% y-o-y.

The bank’s top line grew 6% y-o-y to $128.7 billion in FY 2022. It was because of a 28% y-o-y increase in the NII, partially offset by an 11% drop in the noninterest revenues. On the flip side, the provisions figure increased from -$9.26 billion to $6.39 billion in the year. This led to a 23% y-o-y decrease in the adjusted net income to $35.9 billion, despite positive growth in revenues.

Moving forward, we expect the NII to continue its growth trajectory over the subsequent months. We forecast JPMorgan’s revenues to touch $140.2 billion in FY2023. Additionally, JPM’s adjusted net income margin is likely to see a slight decrease in the year, resulting in an adjusted net income of $37.7 billion and an annual EPS of $12.97. This coupled with a P/E multiple of just above 12x will lead to a valuation of $157.

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 Returns Mar 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 JPM Return -12% -5% 74%
 S&P 500 Return -1% 2% 75%
 Trefis Multi-Strategy Portfolio -4% 3% 224%
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[1] Month-to-date and year-to-date as of 3/20/2023
[2] Cumulative total returns since the end of 2016

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