Maverick Investor Guidance:
- In the aftermath of recent regional banking panics, JP Morgan Chase (JPM) has emerged as a formidable force in the banking sector, demonstrating resilience and continued growth.
- Fed steepening of the yield curve with long-term interest rates increasing faster than short-term rates for the past two months will negatively impact regional banks (KRE) again as it did in March.
- JPM’s outperformance of the regional banking sector paused in early May but has recently broken out of a bullish triangle consolidation, which implies JPM remains one of the few places to be within the financial sector.
- As financial conditions tighten, Mavericks should be comfortable adding to JPM positions on all cyclical pullbacks for the foreseeable future based on our long-term four to five-year projections of greater than +33% growth in per-share fundamentals.
- On a Technical Indicator basis, JPM is experiencing a steep price decline, ultimately giving Maverick Investors an exceptional buying opportunity in the low-US$130s in the weeks and months ahead.
Value Line Ratings:
TIMELINESS 1 Raised 7/28/23.
SAFETY 2 Lowered 5/7/21.
TECHNICAL 3 Lowered 5/5/23.
Financial Strength A+
The 1Q2024 earnings report is anticipated on October 13.
Notes from the 2Q2023 JP Morgan Chase Report: JPM Maintains Dominance in Post-Panic Banking Landscape
The 2Q2023 earnings report demonstrated the bank’s outstanding performance and its strategic moves in 2023.
- Strong Performance in 2023: JP Morgan Chase’s performance in 2023 has been exceptional, with second-quarter profits reaching $3.84 per share, marking a nearly 40% increase compared to the prior year’s figure of $2.76. Notably, this period’s earnings exclude a $0.91-per-share gain attributed to the acquisition of the failed First Republic Bank.
- Influence of Higher Rates: Higher interest rates significantly influenced the bank’s positive results, although lower deposit balances partially offset these gains. While the provision for credit losses did increase to $2.9 billion compared to $1.1 billion in 2022, excluding the impact of First Republic, this figure would have been $1.7 billion, indicating a nearly 55% increase. Higher net charge-offs in the card services segment within the Consumer & Community Banking unit primarily drove this increase.
- First Quarter US Regional Banking Crisis: This year’s first-quarter banking panic seemed to come and go with little lasting impact on the market. Over five days in March, three small- to mid-size US banks failed, triggering a sharp decline in global bank stock prices. That led to a swift response by regulators to prevent potential global contagion, as happened in 2008. However, the effect of the banking panic amidst the Fed rate hikes caused longer-term concerns within the banking sector. As regional banks came under severe strain, the large banks benefited as assets moved to the safety of systemically important institutions – an unintended consequence of banking legislation.
- Continued Growth Amid Uncertainty: In the second half of 2023, JP Morgan Chase acknowledges global economic uncertainty due to inflation and the ongoing conflict in Ukraine. However, the bank maintains a full-year earnings target of $15.80 per share, reflecting a roughly 30% rebound from the previous year’s figure of $12.09. Expectations for 2024 are more modest, with projected net share growth of 3% to $16.30.
- Acquisition of First Republic: JP Morgan Chase completed the acquisition of First Republic Bank on May 1, gaining access to the California-based bank’s substantial assets, including $173 billion in loans, $30 billion in securities, and $92 billion in deposits. Notably, this deposit figure included $25 billion from other US banks, which JP Morgan Chase had repaid after the deal’s completion, and a $5 billion deposit was eliminated. The acquisition enhances the bank’s ‘wealth strategy’ by increasing penetration among high-net-worth clients.
- Favorable Ranking and Dividend Yield: JP Morgan Chase holds a favorable ranking for Timeliness and offers a decent dividend yield. With its solid financial position and assets totaling approximately $3.7 trillion, the bank is well-positioned for growth, aided by its continued investment in digital technology, partnership agreements, and the potential for future acquisitions.
- Rollercoaster Ride and Positive Outlook: JP Morgan Chase’s stock has experienced fluctuations, including a drop in March following the banking failures. However, it has rebounded, supported by the bank’s strong first-quarter performance. The bank holds a Timeliness rank of 1 (Highest), and its dividend yield is an additional attractive feature.
- Wall Street Consensus: Twenty-two Wall Street analysts offered 12-month price targets for JPMorgan Chase & Co. in the last 3 months, with 15 Buy and 7 Hold opinions. Recently, however, there are 9 Buy and 3 Sell. Their average price target is $170.27, with a high forecast of $219.00 and a low forecast of $150.00. The average price target represents a 15.7% change from the last price of $147.12.
In conclusion, JP Morgan Chase’s enduring dominance in the banking sector is underscored by its impressive financial performance, strategic acquisitions, and a positive outlook for the future. Despite economic uncertainties, the bank remains a formidable player in the financial industry.