JPMorgan Chase & Co. (JPM): September Buy, Sell or Hold?

Worries over the U.S. banking sector’s stability due to the credit rating downgrades of several banks by top rating agencies have once again put the banking sector under pressure. Recently, Moody’s downgraded 10 small and mid-sized banks and warned some of the nation’s biggest banks of potential rating downgrades.

Amid the risks arising out of the possible default of commercial real estate loans, slowing loan growth, and rising deposit costs, should investors consider buying, selling, or holding JPMorgan Chase & Co. (JPM)?

In this piece, I have discussed why waiting for a better entry point in JPM could be prudent.

In June, Fitch downgraded the entire U.S. banking sector and has recently warned of potential rating downgrade for America’s biggest banks. Recently, S&P Global downgraded five U.S. banks while putting two others on notice.

JPM reported solid results during the second quarter, with the bank reporting record profits benefiting from higher interest payments from borrowers and the acquisition of the First Republic Bank.

Its 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%. JPM’s CET1 capital ratio came in at 13.8%, and its cash and marketable securities were $1.4 trillion.

Commenting on JPM’s second quarter performance, Opimas’ CEO, Octavio Marenzi, stated, “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.”

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.

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 10.2% in price over the past nine months and 27.5% over the past year to close the last trading session at $144.96.

Here’s what could influence JPM’s performance in the upcoming months:

Robust Financials

JPM’s 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 (ROE) was 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 31.8% and 22.7% year-over-year to $15.94 and $157.88 billion, respectively. On the other hand, its EPS and revenue for fiscal 2024 are expected to decline 7.8% and 2.3% year-over-year to $14.70 and $154.29 billion, respectively.

High Profitability

In terms of the trailing-12-month net income margin, JPM’s 35.38% is 36.7% higher than the 25.89% industry average. Likewise, its 17.11% trailing-12-month Return on Common Equity is 50% higher than the industry average of 11.40%. Its 1.24% trailing-12-month Return on Total Assets is 7.6% higher than the industry average of 1.15%.

Mixed Valuation

In terms of forward Price/Sales, JPM’s 2.67x is 17% higher than the 2.28x industry average. Its 1.42x forward Price/Book is 44.4% higher than the 0.98x industry average.

On the other hand, its forward GAAP P/E 9.10x is 5.5% lower than the 9.63x 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 1.10 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

Following its strong showing in the second quarter, JPM raised its net interest income estimates for fiscal 2023 as it will likely benefit from the high-interest rates. Moreover, deal-making revenues are expected to improve during the second half of fiscal 2023 and next year.

However, JPM faces the risks of stricter lending standards, slowing loan growth, and higher deposit and funding costs.

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. You may check out these B-rated stocks within the Foreign Banks industry: Banco Macro S.A. (BMA), Banco do Brasil S.A. (BDORY), and Erste Group Bank AG (EBKDY). For exploring more Buy-rated Foreign Banks stocks, click here.

What To Do Next?

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JPM shares were trading at $144.68 per share on Thursday morning, down $0.28 (-0.19%). Year-to-date, JPM has gained 10.29%, versus a 17.07% rise in the benchmark S&P 500 index during the same period.

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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