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Diversified Opportunities Report

JPMorgan Chase & Co.

Apr 28, 2022

JPM:NYSE
Investment Type
Large-cap
Risk Level
Action
Rec. Price ($)

 

Company Overview: JPMorgan Chase & Co. (NYSE: JPM) is a financial holding company that specialises in asset management, investment banking, and financial services. It has four business segments as well as a corporate division. Consumer & Community Banking, Corporate & Investment Banking, Commercial Banking, and Asset Management are the company's segments. Consumer and community banking provides services to individuals and businesses through bank branches, ATMs, internet, mobile, and telephone banking. The Corporate & Investment Bank business, which includes Banking and Markets and Investor Services, provides corporations, investors, financial institutions, government and municipal entities with investment banking, market-making, prime brokerage, and treasury and securities products and services. Lending, treasury services, investment banking, and asset management are all services provided by the Commercial Banking division. Investment and wealth management are included in the Asset Management section.

JPM Details

Key Takeaways from Q1FY22 (ended March 31, 2022)

  • Slight Decline in Topline: JPM reported YoY decline of 4.80% in total revenue to USD 30.72 billion in Q1FY22 (ended March 31, 2022) from USD 32.27 billion in Q1FY21, driven by 7.63% growth in Net interest income partially offset by 13.07% decline in Noninterest revenue.
  • Decrease in bottom-line margins: JPM reported a net income of USD 8.28 billion for Q1FY22, which was 42% lower than Q1FY21. This decrease was major because of provisions and reserves build-up of USD 1.46 billion, due to a higher probability of downside risk because of Macroeconomic factors specifically the Russian-Ukraine war and rising inflation. Another important reason for this decrease is net credit reserves of USD 5.2 billion released back into the firm in the prior year.
  • Growth in Total Deposits and Loans: JPM reported a YoY growth of 6.13% and 12.43% in total loans and deposits to USD 1,073.29 billion and 1,077.71 billion as of March 31, 2022.
  • Quarterly Dividend: On March 15, 2022, the company declared a quarterly dividend of USD 1.00 per common share, payable on April 30, 2022, to shareholders of record on April 06, 2022.

Revenue & Net Income Key Highlights; Analysis by Kalkine Group

Recent Developments

  • New Global Headquarters: JPMorgan Chase & Co. announced the design for its new state-of-the-art global headquarters at 270 Park Avenue on April 14, 2022, reaffirming its commitment to New York City. The Foster + Partners-designed 1,388-foot, the 60-story skyscraper will be New York City's largest all-electric tower, with net-zero operational emissions and superb indoor air quality that meets or exceeds the highest sustainability and health and wellness criteria. The new structure will house Up to 14,000 employees, and a total of 8,000 construction jobs will be created across 40 local unions as part of this project. According to a Deloitte analysis, JPMorgan Chase contributes USD 29.8 billion to the city's economy each year, resulting in 40,000 jobs in local industries.
  • Taking a Step Towards Sustainability: JPMorgan Chase began using Prescriptive Data's Nantum OS software to optimise its energy use and lower its carbon impact on April 14, 2022. The Nantum OS software will be integrated into JPMorgan Chase's building management systems at its more significant commercial real estate properties worldwide to help each building run more efficiently by utilising artificial intelligence and sensor technology to track and improve the firm's energy consumption. The software analyses data from occupancy monitoring devices, indoor air quality sensors, thermostats, and building metres, both historical and real-time. The data is then sent directly to the building's HVAC systems, ensuring that the least energy is utilised while maintaining occupant comfort and indoor air quality.

 

Key Metrics: In FY21, JPM's Net Interest Margin and Deposit Growth were 1.67% and 4.0%, higher than previous quarter of 1.63% and 2.4%, respectively. Its Loan Growth stood at (0.5%), 260 bps less than the industry median of 2.3%. Efficiency ratio was 62.5% as of Q1FY22, higher than 61.1% on December 31, 2020.

Growth Metrics; Analysis by Kalkine Group

Top 10 Shareholders: The top 10 shareholders together form around 28.65% of the total shareholding, while the top 4 constitute the maximum holding. The Vanguard Group, Inc., and State Street Global Advisors (US) hold the maximum stake in the company at 8.85% and 4.82%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis

  • Regulatory Risk: JPM operates in a financial services industry globally which requires it to comply with various regulatory regimes both within the US and Outside. Hence, the issuance of such stricter regulations or an increase in enforcement activity could adversely affect the operations and profitability of the company.
  • Collateral Risk: JPM may face disputes with counterparties over collateral valuation may increase during periods of high market stress, volatility, or illiquidity. As a result, if it is unable to obtain the fair value of collateral or manage collateral value reductions during these periods it could harm its financials.

 

Outlook

  • Looking forward, JPM expects to generate net interest income excluding markets of USD 53 billion in FY22, along with adjusted expense to the tune of USD ~77 billion.

Valuation Methodology: Price/Earnings Per Share Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: JPM’s share price has corrected 27.65% over the past six months. The stock is currently leaning towards the lower band of its 52-week range of USD 122.87 to USD 172.96. We have valued the stock using the Price/Earnings multiple-based illustrative relative valuation method and arrived at a target price with an upside of low-twenties (in percentage terms). We believe that the company can trade at a premium compared to its peer's average, considering its growth in deposits and consistent net interest margins. We have taken peers like US Bancorp (NYSE: USB) and Comerica Inc. (NYSE: CMA). Considering the company stable revenue, robust dividend yield, associated risks, and current valuation, we give a "Buy" recommendation on the stock at the closing price of USD 121.42, down 1.30% as of April 27, 2022.

JPM Technical Chart, Data Source: REFINITIV 

Technical Indicators Defined

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.

Note 3: The report publishing date is as per the Pacific Time Zone


Disclaimer-

Kalkine Equities LLC provides general information about companies and their securities. The information contained in the reports, including any recommendations regarding the value of or transactions in any securities, does not take into account any of your investment objectives, financial situation or needs. Kalkine Equities LLC is not registered as an investment adviser in the U.S. with either the federal or state government. Before you make a decision about whether to invest in any securities, you should take into account your own objectives, financial situation and needs and seek independent financial advice. All information in our reports represents our views as at the date of publication and may change without notice.

Kalkine Media LLC, an affiliate of Kalkine Equities LLC, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.