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. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 14% in 2023 – 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 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, 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 (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.
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