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JPMorgan Chase (JPM) is among the largest banks in the world, valued at $605.2 billion by market cap. In the last 20 years, the bank stock has returned over 445% to shareholders. However, if we adjust for dividend reinvestments, cumulative returns are much higher, at 810%. Comparatively, the benchmark S&P 500 Index ($SPX) has returned close to 650% in dividend-adjusted gains during this period.
While JPM has delivered outsized gains for shareholders, it's crucial to analyze whether it remains a viable investment at current valuations. Let’s start with its upcoming quarterly earnings, which are scheduled to be reported ahead of the opening bell this Friday, Oct. 11.
JPMorgan’s Q3 Sales Are Forecast at $41.66 Billion
According to consensus estimates, JPMorgan is forecast to report revenue of $41.66 billion, with adjusted earnings per share (EPS) of $4.01. In the year-ago period, it reported revenue of $39.64 billion and earnings of $4.33 per share. So, while sales are forecast to rise by 5%, EPS is expected to decline by 7.4% year over year.
In the June quarter, JPMorgan reported a 20% increase in sales while earnings rose by 25%. The key driver of its Q2 earnings was the high-margin investment banking business, which grew by over 50% year over year.
In a statement, JPMorgan CEO Jamie Dimon cautioned investors of potential future risks that included higher-than-expected inflation and interest rates. Dimon noted, “The geopolitical situation remains complex and potentially the most dangerous since World War II — though its outcome and effect on the global economy remain unknown. There has been some progress bringing inflation down, but there are still multiple inflationary forces in front of us: large fiscal deficits, infrastructure needs, restructuring of trade and remilitarization of the world.”
JPMorgan ended Q2 with a provision for credit losses of $3.05 billion, higher than estimates of $2.78 billion, due to a volatile macro backdrop. However, the jobs market is strong, with inflation also cooling down, which might translate to a decline in PCLs in Q3.
A rebound in capital markets activity should also boost JPMorgan’s financials and profit margins in 2024. In Q2, its investment banking fees stood at $2.3 billion, almost $300 million higher than estimates. Moreover, equities trading sales rose 21% to $3 billion, higher than estimates of $2.67 billion. Comparatively, fixed-income trading sales rose 5% to $4.8 billion.
Is JPMorgan Stock a Good Buy?
With more than $4.1 trillion in total assets, JPMorgan has reported more than $200 billion in sales in the last four quarters, showcasing its dominant position in the banking sector.
One major reason for JPM’s strong performance over the last two decades can be tied to its CEO, who has been at the helm since 2006. Dimon successfully navigated the company through the Great Financial Crisis of 2008, and has built JPMorgan into a diversified financial services behemoth with multiple revenue streams.
Despite higher interest rates and a tepid lending environment in 2023, it increased sales by 23% and net income by 32% year over year. In 2024, analysts expect JPM to increase sales by 17%, while earnings growth is forecast at 22.5%. Though lower interest rates may impact profit margins, it should also result in lower PCLs and an increase in loan demand across business verticals.
On the other hand, the banking sector is highly cyclical, and remains vulnerable to macroeconomic factors such as consumer spending, unemployment rates, and recessions. In addition to higher loan defaults, JPMorgan could see a dip in investment banking and trading activity if the economy enters a recession. Notably, JPM has a loan portfolio totaling $1.3 trillion, which could register delinquencies in the near term.
Also, the rise of digital banks and other fintech platforms might continue to attract newer retail customers, which remains a concern for entrenched players, including JPMorgan.
The consensus rating on Wall Street is a “moderate buy” for JPM. Out of the 22 analysts covering JPM stock, 13 recommend “strong buy,” one recommends “moderate buy,” and eight recommend “hold.”
The average target price for JPM is $218.37, indicating a marginal upside potential of 2.2% from current levels. However, valued at 12 times forward earnings, JPM stock is quite cheap, given it also offers shareholders a dividend yield of 2.37%.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
