JPMorgan’s stock (NYSE: JPM) has gained 8% YTD, as compared to the 14% rise in the S&P500 over the same period. Further, the stock is currently trading at $144 per share, which is 12% below its fair value of $163 – Trefis’ estimate for JPMorgan’s valuation.
Amid the current financial backdrop, JPM stock has shown strong gains of 20% from levels of $120 in early January 2021 to around $145 now, vs. an increase of about 15% for the S&P 500 over this roughly 3-year period. However, the increase in JPM stock has been far from consistent. Returns for the stock were 28% in 2021, -13% in 2022, and 8% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 14% in 2023 (YTD) – indicating that JPM underperformed the S&P in 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for other heavyweights in the Financial sector including V, MA, and BAC, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could JPM face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?
The bank topped the consensus estimates in the third quarter of 2023. It posted net revenues of $39.9 billion – up 22% y-o-y, primarily driven by a 29% increase in consumer & community banking (CCB), a 32% jump in commercial banking, and a 10% rise in asset & wealth management divisions. Notably, the growth was mainly due to higher net interest income (NII) (up 30% in the quarter), thanks to improvement in the net interest margin. On the cost front, provisions for credit losses and noninterest expenses as a % of revenues witnessed a favorable decrease in the quarter. Overall, it resulted in a 35% y-o-y increase in the net income to $13.15 billion.
The bank’s total revenues grew 27% y-o-y to $119.5 billion in the first nine months of FY 2023. It was mainly because of a 40% y-o-y increase in the NII and a 14% rise in the noninterest revenues. On the expense front, provisions for credit losses jumped 60% y-o-y to $6.56 billion. However, the negative impact was more than offset by lower noninterest expenses as a % of revenues. Altogether, the net income improved by 51% y-o-y in the first three quarters of 2023.
Moving forward, we estimate JPMorgan’s revenues to touch $157.14 billion in FY2023. In addition, JPM’s adjusted net income margin is likely to see a slight increase in the year, resulting in an annual EPS of $15.79. This coupled with a P/E multiple of just above 10x will lead to a valuation of $163.
|S&P 500 Return||4%||14%||96%|
|Trefis Reinforced Value Portfolio||3%||22%||524%|
 Month-to-date and year-to-date as of 11/8/2023
 Cumulative total returns since the end of 2016
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