Loading...
 

JPMorgan Chase & Company (JPM - Free JPMorgan Stock Report), one of the largest banks in the United States and a member of the Dow 30, has reported December-quarter earnings that beat both our and Wall Street’s estimates. The stock, which has risen roughly 25% since Election Day and hit an all-time high, is up again this morning on the news.

The company earned $1.71 a share in the December quarter, compared to our estimate of $1.47 and year-earlier results of $1.32. For all of 2016, it earned $6.19 a share, better than our estimate of $5.95 and 2015 figure of $6.00.

Specifically, revenues rose 2%, supported by a 5% increase in net interest income, aided by good loan growth and higher interest rates. Expenses fell 3%, reflecting lower legal costs. The loan loss provision declined 31%, with reductions in reserves for mortgage credits and loans to the energy and metals sectors offsetting increases for consumer and commercial loans. Tax benefits contributed $0.13 to earnings per share.

By business segment, Consumer & Community Banking profits slipped 2%, hurt by new credit card account origination costs and higher provisions for card and business loans. Corporate & Investment Banking profits nearly doubled, year to year, supported by a 32% increase in markets revenues, reflecting strength in fixed-income trading revenues, the aforementioned tax benefits, and the energy-sector reserve releases. Profits in the smaller Commercial Banking and Asset Management segments increased 25% and 16%, respectively. All other results swung to a $341 million loss, from a $222 profit last year, mostly due to the absence of a large legal settlement that boosted profits in the final quarter of 2015.

The company appears fairly optimistic regarding prospects for the year ahead. To be sure, trading revenues are volatile and may not remain quite as strong in 2017 as last year. But JPMorgan has built significant market share in consumer and investment banking. The credit card origination costs should eventually moderate. And the bank should benefit from higher interest rates. True, card and commercial loan losses may be on the rise, and reserve releases are apt to be less sizable going forward. But losses on loans to oil and gas companies probably won't be as troublesome as earlier feared, now that oil prices have rebounded to the $50 a barrel level. Accordingly, we are raising our share-net estimate for 2017, from $6.15 to $6.35.

As for the stock, given the recent surge in the share price, we think this issue, which is already trading well within our 2019-2021 Target Price Range, may be vulnerable if expectations that the new Trump Administration in Washington will lower taxes and ease bank regulation don't pan out. Note, the stock's dividend yield, which was above average, is now about average after the recent price appreciation. Thus, we think that prospective investors may want to wait for a better entry point before committing funds here.


About The Company:
JPMorgan Chase & Co. is a global financial services company offering a variety of services with operations in over 60 nations. Operational divisions include investment banking, treasury & securities services, asset management, commercial banking, retail financial services, card services, and private equity investment. The company had previously merged with Washington Mutual in September, 2008, Bank One in July, 2004, and Chase Manhattan in the final month of 2000.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.