JPMorgan Chase 2Q21 Earnings Analysis


JPMorgan Chase Stock Analysis

Business Description:


JPMorgan Chase Stock Analysis

  • Massive increase in deposits YoY mostly from Increase in Federal Reserve System balance sheet

  • Massive increase in net income from release of reserves for credit losses of $3.0 billion in 2Q21


JPMorgan Chase Stock Analysis

Catalysts:


  • Economic recovery in the US and around the World

  • Rising interest rates

  • More release of credit losses → do not contribute to actual growth, only paper growth

  • Increased dividends and share buybacks


Risks:

  • Zero interest rates, QE and banking regulations (Dodd-Frank Act of 2011) makes makes it harder for banks to do business


Financial Analysis:

  • Revenues of $31.4 Billion in 2Q21 down $1.7 Billion QoQ

  • Revenues of $121.9 Billion in TTM vs $119.5 Billion in FY20

  • Net income of $11.9 Billion in 2Q21 dowm $2.4 Billion QoQ

  • Net income of $47.7 Billion in TTM vs $27.4 Billion in FY20

  • ROE of 18% vs 7% for 2Q20

  • ROTCE of 23% vs 9% for 2Q20

  • Overhead Ratio of 56% vs 50% for 2Q20

  • CET1 Capital Ratio of 13.0%

  • Common Dividends of $2.7 Billion or $0.90 per share

  • $5.9 Billion of common shares buybacks


Valuations

  • My personal Biases

  • 5.2% of my portfolio, buying since 2016

  • Likes management


  • Assumptions

  • Net income of $48 Billion for FY21 with further release of credit losses and economic recovery

  • Net income falls to $43 Billion in FY20, increasing by 4% annually

  • Discount Rate of 10% for the next 5 years

  • Terminal Growth rate of 2%


JPMorgan Chase Stock Analysis

  • Exit Multiples Analysis

  • Based on Tangible Book value in 2025

  • 2% annual increase in book value for base case (2.3% in last 5 years)

  • 2.3% for bull case and 1.8% for bear case

  • 4% of tangible book value paid in dividends every year (average for last 5 years)

  • 15% of shares outstanding bought back over next 5 years in base case, 20% in bull case and 10% in bear case

  • Price to Tangible book value per share ranged from 1.2 to 2.3 in last 5 years, currently at 2.3, expected to rise if interest rates rises


JPMorgan Chase Stock Analysis

Conclusion

  • Stock undervalued but future returns not expected to be much at current price

  • Good hedge against rising interest rates

  • Good stock to hold long-term

Full analysis on my Research Partnership: https://ishfaaqpeerally.teachable.com/courses/662813/lectures/33539947

JPMorgan Chase Stock Analysis

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