With $3 trillion in assets under management, JPMorgan Chase & Co. (JPM) is a leading global services firm with operations worldwide. The company’s shares have tanked 25.6% over the past year and 27.1% year-to-date to close yesterday’s trading session at $115.41.
Following the Federal Reserve's decision to raise its target interest rate by three-quarters of a percentage point, JPM upped its prime lending rate by 75 basis points to 4.75%. Banks normally flourish in a high-interest rate environment because they make money on the difference between what they earn from lending and what they pay out on deposits and other funds.
However, JPM’s first-quarter profit decreased 42% from the prior year, owing to Russia's invasion of Ukraine, excessive inflation, and supply chain issues. Its investment banking revenue fell by 28% in the first quarter. According to the bank, investment banking fees dipped by 31% due to fewer equity and debt underwriting activity. In addition, CFO Jeremy Barnum said the bank lost an additional $120 million in the first quarter due to the London Metals Exchange's nickel trading instability in March.
Here's what could shape JPM's performance in the near term:
Mixed financials
During the first quarter, which ended March 30, 2021, JPM’s net interest income increased 7% year-over-year to $14 billion. Its consumer & Business Banking net revenue grew 8% from its year-ago value to $6.1 billion. However, its net revenue declined 5% from the prior-year quarter to $31.6 billion, while its net income decreased 42% year-over-year to $8.3 billion. In addition, its noninterest expense grew 2% year-over-year to $19.2 billion.
Consensus Rating and Price Target Indicate Potential Upside
Of 19 Wall Street analysts who rated JPM, 11 rated it Buy, six rated it Hold, and two rated it Sell. The 12-month median price target of $155.28 indicates a 34.7% potential upside. The price targets range from a low of $120.00 to a high of $200.00.
POWR Ratings Reflect Uncertainty
JPM has an overall C rating, which equates to a Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. JPM has a D grade for Growth and a C for Stability. Its poor bottom-line growth is consistent with the Growth grade. In addition, the stock beta of 1.11 is in sync with the Stability grade.
Of the 11 stocks in the F-rated Money Center Banks industry, JPM is ranked #1.
Beyond what I've stated above, you can view JPM ratings for Quality, Value, Momentum, and Sentiment here.
Bottom Line
JPM is a global leader in investment management and has demonstrated strong operational performance in recent years. However, the firm’s poor growth in the recent quarterly financial report could raise investors’ concerns. Furthermore, analysts anticipate its EPS to decline 22.8% in the current quarter (ending June 2022) and 21.1% in the next quarter (ending September 2022). So, we think investors should wait before scooping up its shares.
JPM shares were trading at $112.94 per share on Thursday afternoon, down $2.47 (-2.14%). Year-to-date, JPM has declined -27.72%, versus a -22.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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