JPMorgan Chase A Strong Buy: Raymond James

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JPMorgan Chase A Strong Buy: Raymond James
Joe Mabel [CC BY-SA 3.0], via Wikimedia Commons

Raymond James analysts Anthony Polini, Daniel Marchon and Nicole Gulino look at what 3Q13 could hold for JPMorgan Chase & Co (NYSE:JPM) and reiterate their strong Buy rating on the bank in view of its attractive valuation and growth outlook.

JPMorgan Chase A Strong Buy: Raymond James

JPMorgan earnings

JPMorgan Chase & Co (NYSE:JPM) will report Q3 earnings on October 11 at 7:00 a.m.

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Raymond James expects 3Q13 EPS at $1.29. Against this, market consensus is in the range of $0.70 – $1.57 with a mean expectation of $1.27.

Key positives

Improved credit quality could result in a decline in net charge offs (NCOs) and Non Performing Assets (NPAs) by 4 percent and 10 percent respectively, compared to the previous quarter.

There is a likelihood of reserve release exceeding the currently projected $1.3B in case commercial trends turn out better than expected. However, keep in mind that according to JPMorgan Chase & Co (NYSE:JPM) CFO Marianne Lake, the impact of litigation expenses would neutralize about $1.5B worth of consumer drawdowns.

Net interest income could be higher given that NIMs may turn out somewhat better – 2.21 percent compared to 2.2 percent in 2Q13.

The bank will continue to improve its capital adequacy, and Raymond James expects its Basel III ratio to be higher than 9.5 percent by year-end 2013.

Concerns for JPMorgan

Q3 is a seasonally weak quarter from the point of view of market operations such as principal transactions, investment-banking fees and securities gains; hence income from sources other than interest could be lower.

Mortgage banking income could fall to $1.5B versus $1.8B in 2Q13.

Core non-interest expense could be higher by 2.5 percent.

Rating and valuation

valuation 

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