Is JPMorgan Chase stock still a buy?
The third quarter earnings season began with a whimper Tuesday morning, as stocks were plummeting. The Dow Jones fell some 400 points at the open while the S&P 500 dropped 75 points and the Nasdaq Composite tumbled 350 points.
The catalyst was renewed trade tensions between the U.S. and China. It marred what was otherwise a strong quarter for JPMorgan Chase (NYSE:JPM), as the stock was down about 4% on Tuesday despite beating estimates.
JPMorgan Chase, the nation’s largest bank, is typically the first major company to report earnings each quarter. Here are the key metrics:
- Revenue: $46.4B, up 9% year-over-year and better than estimates of $45.2B.
- Net income: $14.4B, up 12% year-over-year.
- Earnings: $5.07 per share, up 16% year-over-year and better than estimates of $4.84 per share.
JPMorgan Chase performed well across the board and even lifted its guidance for the full fiscal year. But there are some lingering concerns, in addition to the geopolitical events, that may have caused the stock price to drop.
Heightened degree of uncertainty
One of the concerns among investors was a warning by JPMorgan Chase CEO Jamie Dimon about the macro economy.
While there have been some signs of a softening, particularly in job growth, the U.S. economy generally remained resilient,” Dimon said. However, there continues to be a heightened degree of uncertainty stemming from complex geopolitical conditions, tariffs and trade uncertainty, elevated asset prices and the risk of sticky inflation.”
That uncertainty showed in a mixed outlook for the bank. While it raised its guidance for interest income to $95.8 billion, from the previous outlook for $95.5 billion, it also lifted its expense guidance. The bank is now calling for adjusted expenses of $95.9 billion for the full year, up from $95.5 billion.
Further, JPMorgan Chase lowered its net charge off ratio – which is bad debt that won’t be repaid – to 3.3%, from 3.6%. That could signal strengthening credit quality, reinforced by the fact that JPMorgan Chase set aside 9% lower provisions for credit losses. That suggests that the bank expects to have lower credit losses.
Still a buy?
While the outlook is a bit of a mixed bag, the third quarter results were strong. Here’s how JPMorgan Chase did in its three major businesses:
- Consumer Banking: Revenue of $19.5B, up 9%; net income of $5.0B, up 24%.
- Commercial and Investment Banking: Revenue of $19.9B, up 17%; net income of $6.9B, up 21%.
- Asset and Wealth Management: Revenue of $6.1B, up 12%; net income of $1.66B, up 23%.
JPMorgan Chase stock is up 23% year-to-date and it still has room to run. The stock is relatively cheap with a P/E of 15, and despite the economic uncertainty, lower rates should help the bank and increase loans and investment banking activity. It has a median price target of $333 per share, which suggests 12% upside.
JPMorgan Chase has been the best bank for a long time, and it still is, looking even better after the selloff.
