With gains of just 4% over the past six months, compared to the 13% rise for the S&P 500 index, shares of JPMorgan Chase (JPM) have not delivered the results investors expected in the first half of the year, particularly during a period of rising interest rates.
Investors want to know whether JPMorgan’s performance can improve in the second half of the year, which will likely depend on whether the Fed continues to raise interest rates. These topics will be answered when the company reports second quarter fiscal 2023 earnings results before the opening bell Friday. While interest rate increases are beneficial to bank earnings, those events are not the only metrics investors are watching.
The fear of a possible recession remains front and center in deciding whether to invest in bank stocks, particularly as there is already evidence of an economic slowdown in several areas. For banks, in particular, other issues such as slowing loan demand, which has impacted the banking sector, combined with rising funding costs has caused investors to shy away from financials. But JPMorgan, which has benefited from some flight-to-safety investment flows, remains well-positioned to navigate the tough environment.
What's more, relative to its bank peers, JPMorgan’s consistency and operating efficiency is also being rewarded for its ability to return value to shareholders by making strategic shifts in branch-based expansion, technology-driven payments, among other forms of organic growth. Accordingly, with the bank projected to grow EPS at an annual rate of 9% in 2023, JPMorgan appears grossly undervalued relative to expectations.
For the three months that ended June, analysts expect the New York-based bank to earn $3.97 per share on revenue of $38.97 billion. This compares to the year-ago quarter when earnings came to $2.76 per share on revenue of $31.63 billion. For the full year, ending in December, earnings are projected to rise 20% year over year to $14.51 per share, while full-year revenue of $152.45 billion would rise 15.3% year over year.
Given the strong top and bottom line projections, JPMorgan is poised to be bright spot among a group that suffering from lack of confidence among depositors. Bank earnings expectations have also deteriorated to the point where there is now an expectation of a 10% average decline in EPS for the six largest U.S. banks. By contrast, JPMorgan’s adjusted quarterly EPS is projected to grow by close to 45% year over year, while revenue is projected to rise close to 23% year over year.
Just as impressive, the bank’s full year net interest income is projected to surge to $81 billion compared with its prior full-year guidance of $73 billion. Meanwhile, the bank’s loan volumes have trended higher, offsetting weakness in areas like mortgage lending and rising expenses. This trend was again noticeable in the first quarter results when it delivered adjusted EPS of $4.10 per share, which beat Street estimates by 69 cents, while Q1 revenue of $39.34 billion beat estimate by $5.57 billion.
During the quarter, Consumer & Community Banking revenue came in at $16.5 billion, compared to $12.2 billion in the year-ago quarter, while Commercial Banking revenue of $3.51 billion climbed 3%. The strong revenue drove a 48% surge in Q1 net interest income to $20.7 billion which surpassed the $18.8 billion estimate.
On Friday investors will want see continued improvements on these areas to assess the long-term value of JPMorgan stock. In that vein, with the bank projected to grow EPS at an annual rate of 20% in 2023, JPMorgan’s current valuation of $144 per share, and priced at a forward P/E ration of 10, appears undervalued relative to expectations, especially when factoring the better-than 2.79% dividend yield.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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