JPMorgan Chase 1Q21 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 $5.2 billion in 1Q21

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 $33.1 Billion 1Q21 up $3.0 Billion QoQ

  • Revenues of $124.3 Billion in TTM vs $119.5 Billion in FY20

  • Net income of $14.3 Billion in 1Q21 up $2.2 Billion QoQ

  • Net income of $40.5 Billion in TTM vs $27.4 Billion in FY20

  • ROE of 23% vs 19% for 4Q20

  • ROTCE of 29% vs 24% for 4Q20

  • Overhead Ratio of 57% vs 53% for 4Q20

  • CET1 Capital Ratio of 13.1%

  • Issued $1.5 Billion in Preferred Shares in 1Q21

  • Common Dividends of $2.8 Billion or $0.90 per share

  • $4.3 Billion of common shares buybacks

  • 2Q21 net buyback capacity of $7.4B, after paying common dividend of $0.90 per share


Valuations

  • My personal Biases

  • 4.9% of my portfolio, buying since 2016

  • Likes management


  • Assumptions

  • Net income of $45 Billion for FY21 with further release of credit losses and economic recovery

  • Net income falls to $40 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: https://ishfaaqpeerally.teachable.com/courses/662813/lectures/31806835


JPMorgan Chase Stock Analysis

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