With gains of close more than 26% over the past six months, shares of JPMorgan Chase (JPM), the largest U.S. bank by assets, have been one of the better performing stocks in the financial sector. Despite the backdrop of a possible recession, the bank is being rewarded for several quarters of operating efficiency.
Investors want to know whether the bank can continue this momentum in 2023. 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 is front and center in deciding to invest in risk assets, particularly as there is already evidence of an economic slowdown in several areas. These topics will be answered when the company reports first quarter fiscal 2023 earnings results before the opening bell Friday.
Despite the fallout from the failure of Silicon Valley Bank and uncertainty related to Credit Suisse (CS) which has pressured sector, JPMorgan’s consistency, spanning over the past decade, has shown it can successfully navigate economic headwinds to return value to shareholders. JPMorgan has grown earnings per share by more than 130%. Given the bank’s size and reach, JPMorgan could also benefit from the struggles of regional and community banks by realizing a higher rate of deposits.
Accordingly, with the bank projected to grow EPS at an annual rate of 9% in 2023, JPMorgan’s current valuation of $130 per share and priced at a forward P/E ratio of 10, appears undervalued relative to expectations. What’s more, the stock trades below the average price target of $154, making it a strong bargain for investors who are looking for exposure in the banking sector, especially when factoring its 3.13% dividend yield, which has grown at an average of almost 8% over the last five years.
For the three months that ended March, analysts expect the New York-based bank to earn $3.42 per share on revenue of $36.24 billion. This compares to the year-ago quarter when earnings came to $2.63 per share on revenue of $31.59 billion. For the full year, ending in December, earnings are projected to rise 5.3% year over year to $12.72 per share, while full-year revenue of $141.37 billion would rise 6.9% year over year.
While the banking sector may feel the pressure from the collapse of Silicon Valley Bank and Signature Bank, JPMorgan is poised to be bright spot among a group that suffering from lack of confidence among depositors. As a result, 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 EPS is projected to grow by close to 30% year over year, while revenue is projected to rise close to 17% year over year.
Just as impressive, the bank’s net interest income is projected to surge roughly 36.5% to $19.06 billion, which puts the bank’s net interest margin around 2.40%. 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 fourth quarter results when it delivered adjusted EPS of $3.57 per share, which beat Street estimates by 47 cents, while Q4 revenue of $34.55 billion beat estimate by $321 million.
Q4 net interest income of $20.3 billion surpassed the $19.1 billion estimate and grew 16% sequentially and close to 50% year over year. On Friday investors will want to see continued improvements on these areas to assess the long-term value of JPMorgan stock, which looks like a solid opportunity ahead of the quarterly results, especially when factoring the better-than 3.00% 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.
