Institutions or smart money own nearly 70.1% of JPMorgan Chase & Co. (JPM) shares. While 1,789 institutions increased their positions recently, 186 new institutions took positions in the stock.
In this piece, I have discussed several reasons why it makes sense for smart money to keep focusing on the stock.
JPM’s EPS and revenue for the second quarter topped the consensus estimates. Its EPS came 26.5% above the consensus estimate, while its revenue beat analyst estimates by 6.3%. The largest U.S. bank by assets reported record profits benefiting from higher interest payments from borrowers and the acquisition of the First Republic Bank.
JPM’s CET1 capital ratio came in at 13.8%, and its cash and marketable securities were $1.4 trillion. JPM’s Chairman and CEO Jamie Dimon said, “Almost all of our lines of business saw continued growth in the quarter. In Consumer & Community Banking, new checking account production was very strong, while card loans were up 18%.”
“In the Corporate & Investment Bank, Investment Banking fees remained challenged, although we gained market share YTD. In Commercial Banking, Payments revenue remained very strong and grew 79%. Finally, Asset & Wealth Management had record long-term inflows of $61 billion, with inflows across channels, regions, and asset classes,” he added.
On JPM’s second quarter performance, Opimas’ CEO Octavio Marenzi said, “The results were outstanding and really showed strength across the board. Consumer banking was particularly strong, but even investment banking, which has been a problem child over the past year or so, is starting to show signs of life.”
The bank has increased its net interest income (NII) guidance to $87 billion for 2023, $3 billion higher than its previous forecast in May. The bank raised its NII guidance three times this year. Moreover, JPM set aside $2.9 billion as a provision for credit losses. Excluding the First Republic, the provision was $1.7 billion.
The stock has gained 25.5% in price over the past nine months and 36.9% over the past year to close the last trading session at $157.96.
Here’s what could influence JPM’s performance in the upcoming months:
Robust Financials
JPM’s total revenue for the second quarter ended June 30, 2023, increased 34% year-over-year to $41.31 billion. Its net interest income rose 44% year-over-year to $21.78 billion. Its net income increased 67.3% year-over-year to $14.47 billion. Also, its EPS came in at $4.75, representing an increase of 72.1% year-over-year.
Its return on common equity came in at 20%, compared to 13% in the year-ago quarter. Furthermore, its return on tangible common equity (ROTCE) came in at 25%, compared to 17% in the prior-year quarter.
Mixed Analyst Estimates
Analysts expect JPM’s EPS and revenue for fiscal 2023 to increase 31.6% and 22.4% year-over-year to $15.91 and $157.56 billion, respectively. On the other hand, its EPS and revenue for fiscal 2024 are expected to decline 7.5% and 2.5% year-over-year to $14.71 and $153.64 billion, respectively.
High Profitability
In terms of the trailing-12-month net income margin, JPM’s 35.38% is 37.9% higher than the 25.66% industry average. Likewise, its 17.11% trailing-12-month Return on Common Equity is 52.5% higher than the industry average of 11.22%. Its 1.24% trailing-12-month Return on Total Assets is 12.1% higher than the industry average of 1.10%.
Mixed Valuation
In terms of forward Price/Sales, JPM’s 2.93x is 20.1% higher than the 2.44x industry average. Its 1.55x forward Price/Book is 43.7% higher than the 1.08x industry average.
On the other hand, its forward non-GAAP P/E 9.93x is 0.1% lower than the 9.94x 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 C grade for Value, consistent with its mixed valuation. Its 1.08 beta justifies its C grade for Stability.
JPM is ranked #3 out of 10 stocks in the Money Center Banks industry. Click here to access JPM’s Growth, Momentum, Sentiment, and Quality ratings.
Bottom Line
Higher net interest income and the synergies from acquiring the First Republic Bank boosted JPM’s financials in the second quarter. Also, JPM raised its net interest income estimates for fiscal 2023. However, CEO Dimon cautioned that there were “salient risks in the immediate view,” including dwindling consumer balances, the risk that interest rates would be higher for longer than expected, and geopolitical tensions.
While it makes sense for institutions to continue focusing on JPM, given its mixed valuation and 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 an A (Strong Buy) or B (Buy) rating: Banco BBVA Argentina S.A. (BBAR), KB Financial Group Inc. (KB), and Banco Bilbao Vizcaya Argentaria, S.A. (BBVA).
What To Do Next?
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JPM shares were trading at $157.47 per share on Tuesday morning, down $0.49 (-0.31%). Year-to-date, JPM has gained 20.04%, versus a 20.16% 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.
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