The banking sector has been under tremendous stress since March 2023 due to the failure of three regional banks. Despite assurances by the Federal regulators and top executives of large financial institutions, depositors and investors remain jittery about the banking system's stability.
Concerns over the banking crisis led depositors to pull out their money and park it in the high-interest paying money market funds or the ‘too big to fail banks’ like JPMorgan Chase & Co. (JPM), which saw its deposits rise by $50 billion during the first quarter. The company saw its deposits rise 2% year-over-year to $2.38 trillion in the first quarter.
In this piece, I have discussed several reasons why waiting for a better entry point in JPM could be prudent despite its increased deposits.
During the first quarter, JPM surpassed the consensus EPS and revenue estimates. Its EPS beat analyst estimates by 21.7%, while its revenue came in 7.3% higher than the consensus estimate. JPM’s Chairman and CEO Jamie Dimon said, “We continued to generate considerable amounts of capital, and our CET1 ratio increased to 13.8%, compared to a regulatory requirement of 12.5% and our target of 13% for the first quarter.”
Despite the influx of deposits, JPM warned investors that deposit outflows could occur later. JPM’s CFO Jeremy Barnum said, “It’s a competitive market, and it’s entirely possible that people temporarily come to us, and then over time, decide to go elsewhere.”
Earlier this month, JPM announced that it acquired a substantial majority of assets and assumed certain liabilities of the failed First Republic Bank from the FDIC. The failure of the First Republic Bank was the second-largest in United States history. As part of the deal, JPM took $92 billion in deposits from First Republic Bank’s total deposits of $103.90 billion.
The bank also assumed about $173 billion in loans and $30 billion in securities of First Republic. According to Bloomberg Intelligence analysts, the acquisition will help JPM add between 1% and 2% to its net income.
On the First Republic acquisition, JPM Chairman and CEO Jamie Dimon said, “This acquisition modestly benefits our company overall, it is accretive to shareholders, it helps further advance our wealth strategy, and it is complementary to our existing franchise.”
JPM’s stock has gained 19.4% in price over the past nine months and 5.8% over the past year to close the last trading session at $137.46.
Here’s what could influence JPM’s performance in the upcoming months:
Robust Financials
JPM’s total revenue for the first quarter ended March 31, 2023, increased 24.8% year-over-year to $38.35 billion. Its net interest income rose 49.3% year-over-year to $20.71 billion. The company’s noninterest revenue increased 4.7% year-over-year to $17.64 billion. Its net income increased 52.4% year-over-year to $12.62 billion. Also, its EPS came in at $4.10, representing an increase of 55.9% year-over-year.
Its Return on common equity came in at 18%, compared to 13% in the year-ago quarter. Furthermore, its return on tangible common equity (ROTCE) came in at 23%, compared to 16% in the prior-year quarter.
Mixed Analyst Estimates
Analysts expect JPM’s EPS and revenue for fiscal 2023 to increase 20% and 17.7% year-over-year to $14.51 and $151.47 billion, respectively. On the other hand, its EPS and revenue for fiscal 2024 are expected to decline 3.5% and 1.7% year-over-year to $14 and $148.87 billion, respectively.
Its EPS and revenue for the quarter ending June 30, 2023, are expected to increase 35.9% and 25.1% year-over-year, $3.75 and $38.43 billion, respectively.
Mixed Profitability
In terms of the trailing-12-month net income margin, JPM’s 32.54% is 26.1% higher than the 25.80% industry average. Likewise, its 15.22% trailing-12-month Return on Common Equity is 37.1% higher than the industry average of 11.10%. On the other hand, its 1.12% trailing-12-month Return on Total Assets is marginally lower than the 1.12% industry average.
Stretched Valuation
In terms of forward Price/Sales, JPM’s 2.64x is 26.3% higher than the 2.09x industry average. Its 1.35x forward Price/Book is 45.9% higher than the 0.92x industry average. Likewise, its 9.44x forward non-GAAP P/E is 11.1% higher than the 8.49x industry average.
POWR Ratings Reflect Uncertainty
JPM has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. JPM has a D grade for Value, consistent with its stretched valuation.
It has a C grade for Quality, in sync with its mixed profitability. Its 1.08 beta justifies its C grade for Stability.
JPM is ranked #4 out of 9 stocks in the Money Center Banks industry. Click here to access JPM’s Growth, Momentum, and Sentiment ratings.
Bottom Line
JPM reported strong financials during the first quarter, with impressive revenue growth and a rise in net interest income. The bank expects the second quarter and the rest of the year to be challenging as its performance is sensitive to market conditions and economic outlook.
Given its mixed profitability and mixed analyst estimates, it could be wise to wait for a better entry point in the stock.
How Does JPMorgan Chase & Co. (JPM) Stack Up Against Its Peers?
JPM has an overall POWR Rating of C, equating to a Neutral rating. Check out these stocks from the Foreign Banks industry with a B (Buy) rating: KB Financial Group Inc. (KB), Banco BBVA Argentina S.A. (BBAR), and Banco Bilbao Vizcaya Argentaria, S.A. (BBVA).
The Bear Market is NOT Over…
That is why you need to discover this timely presentation with a trading plan and top picks from 40 year investment veteran Steve Reitmeister:
REVISED: 2023 Stock Market Outlook >
JPM shares were trading at $135.37 per share on Wednesday morning, down $2.09 (-1.52%). Year-to-date, JPM has gained 2.49%, versus a 9.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
Is JPMorgan Chase & Co. (JPM) a Buy or Hold? StockNews.com
