JPMorgan Chase Continues Its Positive Trajectory

Submitted by QuantShare as part of our contributors program.

JPMorgan Chase is scheduled to report earnings on July 12. The earnings outlook for the company is positive with analysts forecasting an earnings per share estimate of $1.38 for the company, $0.17 above 2Q12.

First quarter 2013 results for JPMorgan showed the company’s strong recovery following its London Whale Episode which has caused increased scrutiny on synthetic credit portfolios and brought about a number of regulatory issues for the company.

The company’s stock price has improved 7.08% since its first quarter earnings announcement which reported top line revenue of $25.85 billion and net income of $6.53 billion resulting in earnings per share of $1.59.

The first quarter’s results showed the company’s continued improvements under a new structure created to mitigate risk of future trading losses. Following the 2Q12 reported trading losses from the London Whale Episode the synthetic credit portfolio was moved to the Investment Banking division which has resulted in a successful reduction in Value-at-Risk (VaR).

The credit portfolio specifically saw a decline in VaR from $22 million in 3Q12 to $15 million in 1Q13 while the overall VaR for the Corporate and Investment Banking division fell from $122 million in 3Q12 to $62 million in 1Q13. Further restructuring and corporate streamlining has also helped to improve profitability and reduce the overall risk of the firm, which as a whole has reduced its VaR from $115 million in 3Q12 to $73 million in 1Q13. As a result of the company’s actions, the stock price has improved 55.11% since the 2Q12 earnings release which fully disclosed the effects of the company’s losses.

In 2Q13 the company has continued to make strides towards improvement emanating from the leadership of its CEO. On May 21 the company’s board reelected Jamie Dimon as Chairman and CEO among opposition from many shareholders, including CalPers, in favor of separating the roles. While the decision goes against the grain of many investors who have called for divided Chairman and CEO roles at leading U.S. companies, it reinforces the confidence the company has in Dimon’s leadership.

Further reinforcing the confidence in JPM’s London Whale recovery strategy and growth prospects is Raymond James who upgraded the company’s stock on July 2 to Strong Buy from Outperform. The company sited reduced risks resulting from the company’s synthetic credit portfolio and an optimistic earnings per share growth outlook as key reasons for the upgrade.

Second quarter results are expected to include continued growth in the company’s core Consumer and Community Banking division which leads the industry in ATM networks, credit card issuance and mortgage originations.

With the company’s continued improvement in risk management, leadership strength and market leadership position in consumer banking it remains poised to continue improving value for its shareholders in the near term. Slightly undervalued at $52.77 it has a one-year price target1 of $56.61 and remains a leading Bank sector investment in the Dow Jones Industrial Average.

1 The price target is derived from Bodie, Kane and Marcus’ intrinsic value formula. The intrinsic value formula discounts the stock’s projected one-year future cash flow by the risk-free rate on the one-year Treasury note and includes adjustments made for specific market assumptions including the stock’s beta and market risk premium.

This article is provided by QuantShare. QuantShare trading software is designed for traders. It allows traders to monitor the market through a desktop application, tracking technical signals and creating customized display charts that help them to develop portfolio trading strategies based on market indicators.