What Nobias says about JPMorgan (JPM) stock
Key Points
JPM shares have underperformed the broader market during 2022 thus fall, falling more than 31%, compared to the S&P 500’s -25% performance.
Rising interest rates are bolstering JPM’s net interest income.
The company just beat Wall Street’s estimates on both the top and bottom lines, sparking a near-term rally.
57% of recent articles by credible authors are “Bullish” and so are 5 out of the 7 credible Wall Street analysts. JPM shares closed Monday’s trading session at $115.86/share; the credible analysts’ average price target of $134.14 represents upside potential of over 20%.
Performance
Event & Impact
Noteworthy news
Nobias insights
The big banks always kick off earnings season and last week JPMorgan, which is the largest U.S. bank, reported results which beat analyst estimates on both the top and bottom lines. JPM shares rallied 1.66% in response to those results; however, this single-day bump doesn’t change the fact that 2022 has been a rough year for this company’s stock.
After Friday’s rally, JPMorgan shares are down by 31.24% on a year-to-date basis. Therefore, JPMorgan has underperformed the broader markets on a relative basis; the S&P 500, which is down by 25.30% during 2022 thus far. Yet, after this relatively poor performance, the majority of credible authors and analysts that the Nobias algorithm tracks are bullish on JPM shares. The average price target being applied to JPM by credible analysts calls for upside potential of more than 20%.
JPM Oct 2022
Bullish Nobias credible authors:
Coming into earnings season, Nathan Reiff, a Nobias 4-star rated author, published a JPMorgan earnings preview report at Investopedia on October 11, 2022. Reiff said, “JPMorgan Chase & Co. (JPM), the largest U.S. bank by consolidated assets, is likely to report that Q3 2022 profit slid by almost a quarter from the same period a year ago as investment banking fees dropped, even as interest income rose.” He went on to highlight the stock’s recent performance, stating, “JPMorgan shares, little changed in the quarter, were down 36% in the 12 months through September, compared with a 17% drop in the S&P 500.”
Looking at consensus estimates, Reiff wrote, “JPMorgan is likely to say earnings per share (EPS) for Q3 FY 2022 declined 23.3% year-over-year (YOY) to $2.87 as revenue climbed 6.9% to $31.7 billion, according to an average estimate from Visible Alpha.” He mentioned that the company’s management recently made statements potentially setting the stage for disappointing Q3 results, quoting JPMorgan’s CEO, Jamie Dimon, who “said Oct. 10 that a "very serious" combination of headwinds is likely to push the U.S. and global economy into recession by the middle of next year, citing accelerating price increases, Fed rate hikes and the war in Ukraine.”
But, Reiff notes, the poor macro economic environment has created a potential upside catalyst for JPMorgan in the form of rising interest rates. He said, “JPMorgan's net interest margin measures the gap between the income banks generate from credit products like loans and mortgages and the interest they pay to depositors and other creditors.”
Reiff continued, “JPMorgan's net interest margin gradually fell in 2020 and 2021 after the Fed lowered interest rates to mitigate the shock of COVID-19, making it easier for households and businesses to borrow. The Fed's rate hikes have already started to improve the bank's net interest margin.” Finally, he wrote, “In Q2 of this year, net interest margin rose to 1.80%, its highest in nine quarters. Analysts estimate that net interest margin will rise again in Q3, reaching 1.99%, still far short of pre-pandemic levels.”
This metric is going to be key for the company moving forward, and after JPMorgan’s October 14th earnings report, Jon Hopkins, a Nobias 4-star rated author, published an article focused on those quarterly results titled, “JPMorgan sees profit fall beat estimates after gains from higher interest rates”.
During Q3, JPMorgan beat Wall Street estimates on both the top and bottom lines. The company’s Q3 revenue came in at $32.72 billion, up 10.4% on a year-over-year basis, and beating consensus estimates by $840 million. JPMorgan’s GAAP earnings-per-share result of $3.12/share beat Wall Street’s consensus estimate by $0.23/share.
Looking at the bank's bottom line, Hopkins said, “For the third quarter, JPMorgan's profit fell to $9.74 billion, or $3.12 per share, while revenue rose by 10% to $32.72 billion, helped by a 22% increase in revenue from fixed-income trading.” Looking at adjusted numbers, Hopkins continued, “The firm-the largest US bank-reported adjusted profit of $3.36 per share, well above analysts' average estimate of $2.88”.
Specifically looking at net interest income, Hopkins wrote, “JPMorgan's net interest income excluding markets rose 51% to $16.9 billion in the quarter, driven by higher rates. For the fourth quarter, the bank said it expects the metric to rise to about $19 billion.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Regarding Dimon’s quarterly commentary, Hopkins said, “In a statement, JPMorgan chief executive Jamie Dimon noted that American consumers continue to spend and businesses remain healthy.” Hopkins continued, “However, he [referring to Dimon] added, there were "significant headwinds immediately in front of us", noting stubbornly high inflation leading to higher global interest rates, the uncertain impacts of quantitative tightening, the war in Ukraine and the fragile state of oil supply and prices.”
Lastly, Hopkins highlighted one of the worst performing segments of JPMorgan’s business, writing, “Revenue from investment banking, one of the bank's biggest businesses, slumped by 43% to $1.7 billion as a mix of high inflation and fears of looming recession forced buyers and sellers to pause deals.”
Overall bias of Nobias Credible Analysts and Bloggers:
With JPMorgan’s quarterly results in the books, both the communities of credible authors and credible analysts that the Nobias algorithm tracks are largely bullish on JPM shares. 57% of recent articles published which focused on JPMorgan by credible authors have expressed a “Bullish” bias towards shares. 5 out of the 7 credible Wall Street analysts that the Nobias algorithm tracks who have published opinions on JPM shares expect to see the stock rise in value. Right now, the average price target being applied to JPM shares by credible analysts is $134.14. JPM shares closed Monday’s trading session at $115.86/share; the average price target of $134.14 represents upside potential of over 20%.
Disclosure: Nicholas Ward has no JPM positions. Nicholas Ward wrote this article for Nobias at their request with the intention of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.