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JPMorgan: Strong Capital Returns and Fairly Valued
Stock Analysis & Ideas

JPMorgan: Strong Capital Returns and Fairly Valued

JPMorgan Chase & Co. (JPM) is a financial holding company whose global operations include consumer & community banking, corporate & investment banking, commercial banking, and asset & wealth management.

As of its latest filing, the company had around $3 trillion in assets under management (AUM). It’s also by far the largest diversified bank in the U.S. in terms of market cap. Specifically, JPMorgan is worth nearly $500 billion, with Bank of America (BAC), the second-largest diversified bank, worth almost $400 billion.

JPMorgan’s competitive advantages include its immense scale, diversified cash flow streams, and world-class reputation. In my view, its stock makes for a quality investment, offering growth, robust qualities, and strong capital returns while trading at a fair valuation. For these reasons, I am bullish on JPMorgan. (See Analysts’ Top Stocks on TipRanks)

Q3 Results: Robust Financials 

JPMorgan’s Q3 results were rather strong, with total revenues landing at $29.6 billion, 1.7% higher year-over-year, and in line with estimates. Markets revenues were relatively weak, with fixed income down -20%, but equity markets made up for this weakness, growing by 30% versus the prior-year period.

Average loans were also down -7% year-over-year, and -1% compared to the previous quarter. Still, average deposits were up 2% sequentially and up 19% year-over-year, more than offsetting this decline.

Furthermore, average loans were $1 trillion while average deposits were $2.4 trillion, resulting in a comfortable loan-to-deposit ratio. JPMorgan also reported an ROE (return on equity) of 18% and ROTCE (return on tangible common equity) of 22%.

At the moment, rate hikes could be one of JPMorgan’s principal growth opportunities going forward. The ongoing inflationary environment is tough for banks, as the U.S currently has a very low real rate, indicating potential rate increases by the Fed at some point.

So far, the Fed has pointed towards low rates persisting. However, seeing the company performing strongly in such a pressuring environment should imply exciting prospects, assuming rates increase going forward.

Capital Returns and Valuation

JPMorgan has grown its capital returns consistently over the years. In addition, its dividend has increased annually for the last 11 consecutive years. The previous dividend per share hike was 11.1% in September. It also executes significant stock repurchases, adding to its total capital returns.

It has bought back $16.2 billion worth of shares in the last twelve months alone. With a dividend yield of 2.5% and a “buyback yield” of around 4.3% based on the current quarterly run-rate of approximately $20.8 billion, the combined tangible returns investors are currently enjoying are quite sizeable.

Shares are trading at a forward P/E of approximately 14, which makes JPMorgan attractively priced, in my view, while its capital returns provide a nice margin of safety. Overall, JPMorgan remains a very well-run bank with a seasoned management team and a proven track record of solid shareholder value creation.

Moreover, considering that the company performed well during the Pandemic, and future rate hikes could benefit its earnings, JPMorgan is well-positioned to continue to grow its record profitability levels. Hence, I remain confident in the stock’s medium-term prospects.

Wall Street’s Take

Turning to Wall Street, JPMorgan has a Moderate Buy consensus rating, based on 10 Buys, two Holds, and one Sell assigned in the past three months. At $175.85, the average JPMorgan price target implies 7.4% upside potential.

Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

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