Key Morningstar Metrics for JPMorgan Chase
- Fair Value Estimate: USD 235.00
- Morningstar Rating: ★★
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: Medium
What We Thought of JPMorgan Chase’s Earnings
JPMorgan Chase reported solid results on all fronts as third-quarter earnings came in at USD 5.07 per share, equating to a return on tangible equity of 20%. We expect earnings to remain resilient in the near term, but we caution investors about the demanding valuation.
Why it matters: Asset management benefited from buoyant valuations, trading revenue remained strong, while investment banking momentum picked up both on the mergers and acquisitions and capital markets fronts. Continued acceleration in loan growth, especially wholesale loans, remains a highlight for the bank.
- Overall loans grew by 2% on a sequential basis and 7% on a year-over-year basis, powered mostly by growth in wholesale and credit card loans. While a pickup in loan growth is welcome news for banks, we note that the credit spreads remain unattractive.
The bottom line: We plan on increasing our USD 235 per share fair value estimate for wide-moat JPMorgan by a low- to mid-single-digit percentage after incorporating third-quarter results due to slightly higher projections of profitability in the near term.
- We continue to believe that the shares remain overvalued on a risk-adjusted basis. The bank has an enviable competitive position and should continue to grow its market share. Having said this, we remind investors that banking is a cyclical business and profitability is currently near cyclical highs.
Bulls say: Near-term sentiment remains strong as trading, investment banking, loan growth, AUM-linked revenue, credit costs, and NII growth are all expected to hold up well. The new administration has also shown signs of relaxation on the regulatory capital front, supporting capital return.
Bears say: The upbeat sentiment has pushed up the valuation, and JPMorgan is now trading at cyclically high TBV multiples of around 2.9 times. High market valuations, tight credit spreads, sticky inflation, geopolitical and trade uncertainties all imply that risks are to the downside.
