The largest American lender, JPMorgan JPM stock has gained 9.6% in the past month. The shares have outperformed the Zacks Finance sector and the S&P 500 Index.
One-Month Price Performance
Zacks Investment Research
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If you check out the above chart, you will see that JPM shares have primarily rallied following the announcement of the U.S. presidential election results. Closing Thursday’s session at $244.76, JPM stock is down just 1.3% from its new 52-week high of $248, touched on Nov. 6.
Donald Trump’s win in the election led to a rally in JPMorgan stock. Trump’s re-election has raised hopes of deregulation in the banking sector, which has been reeling under stringent regulatory requirements. Also, the new administration will likely be friendlier toward corporate consolidation as more leniency in approving merger deals is expected.
Hence, a solid rebound in capital markets business and less strict regulations are expected to keep the momentum alive for JPMorgan, which is witnessing a banner year. The company shares have surged 47.3% this year.
JPMorgan’s technical indicators also suggest that there could be more upside. The stock has been trading above the 50-day and 200-day moving averages, indicating investors’ bullish sentiments.
50-Day & 200-Day Moving Average
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Let’s take a closer look at JPMorgan’s strengths and weaknesses to identify the best strategies for capitalizing on this price surge.
JPMorgan continued to rank #1 for global IB fees despite industry-wide weakness in the business. Though the company’s total IB fees (in the CIB segment) plunged 59% in 2022 and 5% in 2023, the trend has been reversing of late. In the first nine months of 2024, the company’s IB fees jumped 34% year over year, with a wallet share of 9.1%.
JPMorgan is likely to witness growth in IB fees, driven by a healthy IB pipeline and active merger & acquisition market, and leverage its top position to gain further from the changed scenario.
JPMorgan has been growing through on-bolt acquisitions, both domestic and global. In 2023, the company increased its stake in Brazil’s C6 Bank to 46% from 40%, allied with Cleareye.ai (a financial technology firm focused on trade finance) and acquired Aumni.
Also, the company acquired the failed First Republic Bank. The deal continues to benefit JPM’s financials immensely and even helped it reach record profits last year. Additionally, in 2022, it acquired Renovite and a 49% stake in Greece-based Viva Wallet and Global Shares. These deals, along with several others, are expected to support the bank’s plan to diversify revenues and expand the fee income product suite and consumer bank digitally.
In February 2024, JPM announced plans to open more than 500 branches and renovate roughly 1,700 locations by 2027-end. As of Sept. 30, 2024, it had more than 4,900 branches across all 48 states in the United States. Its peers Wells Fargo WFC, Bank of America BAC and Citigroup C had 4,196, 3,741 and 641 branches, respectively, at the end of the third quarter.
JPMorgan actively seeks to expand its digital retail bank – Chase – across the European Union countries after launching it in the U.K. in 2021. The company is focused on bolstering its IB and asset management businesses in China.
As of Sept. 30, 2024, JPM had a total debt worth $850.1 billion. The company’s cash and due from banks and deposits with banks were $434.3 billion on the same date. The company maintains long-term issuer ratings A-/AA-/A1 ratings from Standard and Poor’s, Fitch Ratings and Moody’s Investors Service, respectively.
Hence, JPM continues to reward shareholders handsomely. After clearing the 2024 stress test, the company increased its quarterly dividend by 8.7% to $1.25 per share in September. In February 2024, the company announced a 9.5% hike in quarterly dividends, which followed a 5% increase last year. In the last five years, it hiked dividends four times, with an annualized growth rate of 5.09%. Currently, the company’s payout ratio is 26% of earnings.
Dividend Yield
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The company also authorized a new share repurchase program, effective July 1. Management expects the pace of share buybacks to be modest in 2024 after having repurchased shares worth almost $9.9 billion in 2023.
The Federal Reserve has started cutting interest rates. The central bank lowered the rates by 75 basis points (bps) and the market participants expect another 25-bps cut in December. Cooling inflation numbers and a slowdown in the labor market are driving it to take this step.
While lower rates would lessen deposit repricing pressure, it would also mean lower interest income. This is expected to hurt JPM’s net interest income (NII).
On the third quarter conference call, JPMorgan’s chief financial officer, Jeremy Barnum, noted that NII-excluding Markets is expected to witness sequential declines and reach a trough by mid-2025. After that, the metric is likely to grow sequentially and reach almost $87 billion by the end of next year. The company anticipates NII-excluding Markets to be approximately $91.5 billion in 2024.
Thus, weakness in NII next year will hurt JPMorgan’s top-line growth. On the other hand, BAC, WFC and C project NII to keep growing into the next year with some quarterly volatility as the Fed lowers the rates.
As mortgage rates remained high in 2022 and 2023, JPMorgan’s mortgage fees and related income performance turned dismal. As the demand for mortgage loans and refinancing steadily declined, the metric recorded a negative CAGR of 27.5% over the three years ended 2023. Though the trend reversed in the first nine months of 2024, origination volumes and refinancing activities are less likely to witness solid improvement as mortgage rates are expected to remain on the higher side.
Per the November 2024 commentary from the Fannie Mae Economic and Strategic Research Group, the mortgage rate outlook has been revised upward for 2024 and 2025. This is attributable to the rise in bond rates since the September FOMC meeting. Higher mortgage rates will undeniably take a toll on origination and refinancing volumes.
Hence, JPMorgan’s mortgage fees and related income is less likely to record solid growth in the near term.
Earnings estimates for JPMorgan for 2024 and 2025 have revised marginally upward over the past month. The positive estimate revision depicts bullish sentiments for the stock.
Earnings Estimates Trend
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The Zacks Consensus Estimate for JPM’s 2024 earnings implies an 8.6% growth year over year, while 2025 earnings indicate a 5.3% fall because of weakness in NII performance and higher non-interest expense. Management anticipates adjusted non-interest expenses to rise to more than $94 billion next year. For 2024, the metric is expected to be approximately $91.5 billion.
Earnings Estimates
Zacks Investment Research
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Find the latest earnings estimates and surprises on ZacksEarnings Calendar.
Despite the rally in JPM shares, the company is currently trading at a discount with forward 12-month earnings multiple of 14.58X compared with the Finance sector’s 17.32X.
Price-to-Earnings F12M
Zacks Investment Research
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Therefore, from a valuation perspective, JPMorgan’s shares present an attractive buying opportunity. The stock is still undervalued as the market has yet to recognize or price the company’s growth prospects fully.
JPMorgan’s leadership position in several businesses and strategic plan to expand its footprint globally gives it an edge over its peers. Its focus on building a solid deposit franchise and bolstering its loan book positions it well for future growth.
Yet, investors must take into consideration the bearish analyst stance for JPM for next year. They must watch the NII trajectory and how future interest rate cuts impact the company’s financials.
So, investors should consider these factors carefully and evaluate their risk tolerance before buying the JPM stock. Those who already own the stock can hold on to it because it is less likely to disappoint over the long term.
JPM currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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