Will JPMorgan Chase’s stock price go back to $150? (NYSE: JPM)
Summary in seconds
I assign a Hold investment rating to JPMorgan Chase & Co. (NYSE:JPM).
JPM will be a buy, if its shares can rally to $150 (early to mid-February 2022 price levels), which equates to +21% capital appreciation. But this is unlikely, because an increase in spending will weigh on JPMorgan’s near-term earnings and an expansion of its 2023 P/E multiple to 11.9 times looks daunting in the current market climate. While I appreciate JPM’s long-term growth potential in terms of market share gains, now doesn’t seem like a time to be bullish on JPMorgan. In this case, a Hold rating is appropriate for JPMorgan.
JPM Stock Key Indicators
JPMorgan released a decent set of financial results in the last quarter of 2022. JPM’s first-quarter revenue of $30.7 billion beat the market consensus estimate of 30.4% by +1%. billion, but JPM’s first-quarter 2022 earnings per share of $2.63 missed Wall Street. consensus EPS projection of $2.71 of -3%. However, its first-quarter adjusted EPS would have been much higher at $2.86 had it not been for a “net credit reserve build of $902 million” on an “enterprise-wide” basis, as the underlines its press release on the results of the first quarter.
Additionally, the market deems JPM’s earnings for the first quarter of 2022 satisfactory, as evidenced by the company’s recent share price performance. JPMorgan’s stock price has tracked the S&P 500 very closely over the past month and also after releasing first quarter results on April 13, 2022, as shown in the chart below.
JPM stock price performance over the past month
I have a positive view on a number of key metrics that were disclosed as part of JPMorgan’s recent quarterly financial statements.
A key indicator is JPM’s revenue from trading. Based on the company’s earnings supplement for the first quarter of 2022, JPMorgan’s trading revenue of $8.8 billion in the first quarter was only down -3% year-over-year and was +16% higher than the sell-side consensus forecast according to S&P Capital IQ. In the first quarter of 2022, its bond income fell only marginally by -1% yoy to $5.7 billion, while the -7% yoy decline in equity market income to $3.1 billion dollars hasn’t been as bad as expected either.
Another key metric is net interest margin. JPMorgan’s net interest margin increased by +0.04 percentage points to 1.67% in the first quarter of 2022. This drove JPM’s net interest income growth of +8% year-on-year, which fell from $12.9 billion in the first quarter of 2021 to $13.9 billion in the last quarter. The bank’s first-quarter net interest income was also +2% higher than Wall Street analysts expected, according to S&P Capital IQ The data.
Additionally, JPM’s credit quality was consistently good over the past quarter. JPMorgan’s net charges of $0.6 billion in the first quarter of 2022 were comparable to the fourth quarter of 2021 and significantly lower than the net charges of $1.1 billion in the first quarter of 2022. Its net charges in the first quarter were nearly -30% lower than the sell-side forecast for the quarter, based on estimates from S&P Capital IQ.
In summary, JPMorgan’s performance in the first quarter of 2022 has been reasonably good, and this is validated by the company’s recent share price performance, which was in line with the performance of the broader market. In the next section, I see how JPM compares to its peers in terms of valuations.
Is JPM undervalued?
JPMorgan is one of the “big four” banks alongside Bank of America Corporation (NYSE:BAC), Citigroup Inc. (C) and Wells Fargo & Company’s (NYSE:WFC). A comparison of JPM against these three peers will give investors a good indication of JPMorgan’s current undervaluation.
|Store||Current price to tangible book value ratio||Consensus on the next twelve months of the normalized PER multiple||Consensus Forward FY 2023 Metric ROE||Three-Year Consensus Forward (FY2023-FY2025) Earnings per Share CAGR|
|Bank of America||1.78||10.7||12.1%||+14.2%|
Source: S&P Capital IQ
I don’t think JPM is undervalued. JPMorgan’s price-to-tangible ratio is the highest among its peers, while its normalized P/E multiple for the next twelve months is the second-highest in the peer group.
JPM’s FY2023 ROE forecast is higher than its peer, which goes some way to justifying JPMorgan’s valuation premium. But JPMorgan’s expected EPS CAGR is lower than some of its peers like BAC and C.
In conclusion, it’s hard to say that JPMorgan’s stock is undervalued based on the peer review comparison I performed. In other words, JPM is quite valued or even overvalued.
Can JPMorgan Chase shares recoup up to $150?
JPMorgan’s last stock price was $123.92 as of May 5, 2022. Investors interested in initiating a position in JPM should consider whether the company’s stock can reach $150, where JPM traded from the start. mid-February 2022. A one-year price target of $150 translates to +21% upside, which is a reasonable rate to buy and hold the bank’s stock.
A price target of $150 equates to a forecast FY2023 C/E multiple of 11.9 times based on JPMorgan’s FY2023 consensus Normalized EPS of $12.59. That’s higher than JPM’s 10-year consensus average PER of 11.3 times according to S&P Capital IQ evaluation data.
In the current bear market environment, it can be difficult to expect a stock to trade at or above its historical average valuation multiple. As such, a rally in the stock price for JPM to $150 in the near term appears to be difficult.
What is the long-term future of JPM shares?
JPM guided during the bank’s fourth quarter 2021 earnings briefing in mid-January 2022 an +8% increase in spending to $77 billion for fiscal 2022. JPMorgan maintained its spending forecast for this year in the recent Q1 2022 investor call in April. JPM also mentioned during the Q4 briefing that 2023 spending is also expected to “increase quite a bit.”
JPMorgan emphasized on the fourth quarter 2021 investor call that “the goal of our investment strategy is to secure the future of the business”, and noted in particular that “our market shares are strong and increase significantly throughout the company”.
This sends a clear message about the long-term future of JPM stocks. JPMorgan is committed to investing for future growth, although it understands this could hurt its bottom line in the near term (as seen with a consensus EPS CAGR for FY 2023-2025 lower than peers underlined above).
A key driver of JPMorgan’s future growth will be driven by market share gains at the expense of competitors, and the bank needs to spend more to meet its targets, its spending guidance indicates. With a broader long-term revenue base, JPMorgan can also take advantage of economies of scale and positive operating leverage to generate higher profit margins.
Is JPM stock a buy, sell or hold?
The JPM action is a Hold. I like JPMorgan’s long-term focus and market share growth ambitions. But its current valuations are unattractive relative to its peers, and the intention to spend more to support future growth is negative for its near-term earnings growth prospects. This is why I chose to rate JPM as a Hold.