JPMorgan Chase & Co. (JPM) is one of the most important financial institutions in the US, with more than $ 3.0 trillion in assets under management.
The company’s international activities include Consumer & Community Banking, Commercial Banking, Corporate & Investment Banking and Asset & Wealth Management. JPMorgan is also by far the largest diversified bank in the US in market capitalization. The company is valued at approximately $ 370 billion, with Bank of America (BAC), the second largest diversified bank, worth about $ 313 billion.
JPMorgan’s investment case is different from that of its peers due to its numerous competitive advantages. These include the huge scale of the bank, the diversified cash flows and the world-class reputation. Historically I have seen JPMorgan as a quality investment, as it has growth, rich properties and strong return on capital.
Following the year-on-year correction of the stock, JPMorgan shares have become rather attractive. While first-quarter results were weaker than last year amid excessive outflows of net credit at the time, the bank’s outlook for the year remained stable.
In addition, the new management return program is expected to positively affect the bank’s earnings per share, which, combined with the possibility of extending the valuation, make JPMorgan’s investment dissertation rather tempting.
I remain bullish on JPMorgan.
Declining profits are not a concern
For the first quarter of fiscal year 2022, JPMorgan reported revenue of $ 30.7 billion, down 5% year on year. In addition, net income was $ 8.3 billion, down from a much more substantial 42% during this period. However, the results of this quarter need some framework.
In particular, last year’s profits of all banks were dramatically boosted by the release of reserves, with the result that net income levels almost doubled from year to year at that time.
Most bank balance sheets boosted in 2021 due to the release of credit losses from the COVID era, which include the reserves accumulated by financial institutions since the pandemic began to absorb the possible scenario of some borrowers failing to meet their obligations. their.
In the first quarter, JPMorgan reported an increase in a net credit reserve of $ 902 million compared to a release of a net credit reserve of $ 5.2 billion in the same period last year. Therefore, the massive reduction in net income is only synthetic and should not cause unnecessary concern.
Overall, the results for the first quarter were rather mixed. On the one hand, in consumer and Community banking, deposits increased by 18%, while clients’ investment assets increased by 9%, mainly boosted by positive net flows.
Combined debit and credit card costs also increased by 21% as JPMorgan continues to experience a resurgence in credit card spending, especially when it comes to travel and food.
On the other hand, card loan balances increased by 11%, but were still below pre-COVID levels. While car loans also increased by 3%, the lack of vehicle supply continued to limit the origin, which decreased by 25%.
Clearly, the current economic environment has increased market uncertainty on multiple fronts. JPMorgan’s goal this year should be to minimize the damage of the current global turmoil to both the company and its customers instead of maximizing profitability as last year.
However, investors need to recognize that fiscal year 2022 should still be a fairly profitable year for the company given the overall conditions. Wall Street analysts expect the company to return EPS $ 11.18 for the year, indicating a drop of about 26.9% compared to fiscal 2021 due to the aforementioned reasons.
However, this implies a strong growth of 25.7% compared to the financial year 2020, which shows the positive trajectory of profit growth excluding the release of reserves last year.
Huge acquisitions to boost metrics per share
Assuming that the current factors of global financial uncertainty begin to weaken from the financial year 2023, JPMorgan’s profit growth should continue from next year. However, the huge acquisitions of the company alone should have an incremental effect on its measurements per share.
The company has a long history of major repurchase programs. Last year, JPMorgan repurchased its common stock worth about $ 18.4 billion. In the most recent quarter, acquisitions totaled $ 1.7 billion, and the board has now approved a new $ 30 billion share repurchase program, effective May 1, 2022.
This represents about 8% of JPMorgan’s current market capitalization, suggesting that the company will withdraw a significant portion of its common stock in the short to medium term.
Download Wall Street
For Wall Street, JPMorgan has a consensus rating of Moderate Market based on nine Purchases, seven Holdings and one Sale assigned in the last three months. At $ 162.43, JPMorgan’s average price target is up 27.3%.
Take it away
JPMorgan shares have fallen sharply from their 52-week low amid heightened uncertainty following the ongoing global turmoil. Although the sell-off was not entirely unjustified, it seems to me that stocks could have a rather attractive price at their current levels.
Despite the seemingly significant drop in profits in its most recent results, it is natural after last year’s release of reserves, while JPMorgan should close the year with significantly higher profits than its pre-COVID levels.
Combined with the new repurchase program, which is expected to significantly boost the overall return on investment of investors along with the current dividend yield of 3.17%, JPMorgan offers value with a relatively large margin of safety.
Discover new investment ideas with data you can trust.
Read the full Disclaimer and Disclosure