JPMorgan Chase & Co.

JPMorgan Chase & Co. (NYSE: JPM) is an investment banking, financial services, and asset management holding corporation. It has four business sectors as well as a corporate division. Consumer & Community Banking, Corporate & Investment Banking, Commercial Banking, and Asset Management are the company's segments.

Key Highlights and updates

• JPMorgan Chase & Co. has submitted a Current Report on Form 8-K containing the slides provided for an investor presentation held on May 23, 2022, in connection with JPMorgan Chase & Co.'s Investor Day for posting on Euronext Dublin's website and the UK Financial Conduct Authority's National Storage Mechanism.
• JPMorgan Chase & Co. revealed on April 14, 2022, the design for its new state-of-the-art global headquarters. The 1,388-foot, 60-story skyscraper, designed by Foster + Partners, will be New York City's tallest all-electric tower, with net-zero operating emissions. A total of 8,000 construction jobs will be produced among 40 local unions as part of the project, which will accommodate up to 14,000 employees. JPMorgan Chase provides USD 29.8 billion to the city's economy each year, resulting in 40,000 jobs in local sectors, according to a Deloitte report.

Important financials from the Q1 FY22 results

• JPMorgan Chase & Co. reported a 4.80% drop in overall revenue from USD 32.27 billion in Q1FY21 to USD 30.72 billion in Q1FY22 (ending March 31, 2022), led by a 7.63 percent rise in Net interest income largely offset by a 13.07 percent drop in Noninterest revenue.
• JPMorgan Chase recorded a net income of USD 8.28 billion in Q1FY22, down 42 percent from Q1FY21. This decline was significant due to a USD 1.46 billion increase in provisions and reserves because of a heightened likelihood of negative risk due to macroeconomic conditions, notably the Russian-Ukraine war and rising inflation. Another factor contributing to the drop is the USD 5.2 billion in net credit reserves that were re-invested in the company the previous year.
• As of March 31, 2022, JPMorgan Chase reported a YoY increase of 6.13 percent and 12.43 percent in total loans and deposits, respectively, to USD 1,073.29 billion and 1,077.71 billion. JPM Credit also incurred USD 1.5 billion in charges, which comprised a USD 902 million net reserve increase and USD 582 million in net charge-offs.

Balance sheet and cash position

• Cash and dues from banks were USD 723.73 billion for the quarter ending March 31, 2022, compared to USD 689.97 billion for the same period in the previous year.
• Total long-term debt was USD 293.23 billion for the quarter ending March 31, 2022, compared to USD 279.42 billion for the same period in the previous year.

Other key financial information from Q1 FY22

• The firm announced a quarterly dividend of USD 1.00 per common share on March 15, 2022, which will be paid on April 30, 2022, to shareholders of record on April 5, 2022.
• JPMorgan Chase & Co.'s net common stock repurchases during the first quarter of FY22 were USD 1.7 billion, and the firm's Board of Directors has approved a new USD 30 billion common equity share buyback program, which will begin on May 1, 2022.

Risk analysis

• Regulatory Risk: JPM operates in the global financial services business, which necessitates compliance with a variety of regulatory regimes both within and outside the United States. As a result, the adoption of such tighter laws or an increase in enforcement activities might have a negative impact on the company's operations and profitability.
• Collateral Risk: During instances of severe market stress, volatility, or illiquidity, JPM may confront disagreements with counterparties about collateral valuation. As a result, it risks damaging its financials if it is unable to recover the fair value of collateral or manage collateral value drops throughout these periods.

Outlook

Based on Fed funds hitting 3% by year's end, in line with the current forward curve; high single-digit loan growth this year, excluding CIB markets and PPP; and modest securities deployment, JPMorgan Chase forecasts full-year 2022 NII ex-markets to surpass USD 56 billion. Given these considerations, the company expects an NII run rate of roughly USD 66 billion in the fourth quarter, which will serve as a good starting point for next year. While JPMorgan's forecast for the expenditure remains about USD 77 billion for the FY22, half of which is allocated to strategic investments.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

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

JPMorgan Chase had a strong first quarter, generating USD 30 billion in sales, USD 8.3 billion in profitability, and an ROTCE of 16 percent despite adding USD 902 million in credit reserves, owing to elevated risks of downside. The firm's lending strength remained strong, with average firmwide loans growing 5%, and credit losses remaining at historically low levels.

Over the past six months, JPM's share price has been corrected by 18.65%. The stock is currently leaning towards the lower end of its 52-week range of USD 115.02 to USD 172.96. The stock has shown a bit of bullish rally in the past 15 days, gaining around 13%, breaking the short-term (50-day) SMA from below. We have valued the stock using the Price/Earnings Per Share multiple-based relative valuation method and arrived at a target price of USD 158.70. We believe that the company is trading at a premium from its peer's average considering better financial metrics compared to the industry and a positive outlook gives bullish estimates for the upcoming near future.

Considering the strong fundamentals, healthy top-line results, associated risks, positive outlook, and current valuation, we give a "Hold" recommendation on the stock at the current price of USD 128.10 up 0.96%, as of June 02, 2022, at 12:01 PM PDT.

One Year Technical Chart, as of June 02, 2022, at 12:01 PM PDT. Data Source: REFINITIV, Analysis by Kalkine Group

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

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting 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.