Blowing Past Expectations, JPM Stock Is Headed To $100 Plus

Stocks to buy

When JPMorgan (NYSE:JPM) reported second quarter earnings in mid-July, the company proved that it is the best bank on Wall Street, and that JPM stock is the best bank stock to buy today amid Covid-19 related weakness.

a sign for JP Morgan Chase & Co.

Source: Bjorn Bakstad / Shutterstock.com

Not only did JPMorgan smash through second quarter revenue and profit estimates — while banking peers either missed or barely beat expectations — but the bank also saw revenues rise 15% year-over-year and pre-provision profits soar 28% year-over-year, all against the backdrop of a U.S. economy hobbled by a pandemic and economic shutdowns.

In other words, JPMorgan is as red-hot today as any bank possibly could be.

Going forward, Covid-19 headwinds will moderate. As they do, economic activity will pick up.

Rates will move higher. Bank sector fundamentals will improve. And the current strength that JPMorgan has today, will only gain momentum.

As it does, JPM stock will power higher. Here’s a deeper look.

Strong JPMorgan Earnings

JPMorgan’s second quarter earnings report was surprisingly strong.

Revenues topped estimates, and rose 15% year-over-year to record highs, paced by rebounding consumer spending trends, rising mortgage and auto applications and huge fixed-income trading volumes.

Profits topped estimates too, despite a huge increase to credit-loss reserves, mostly because the company’s operating efficiency continues to improve and profit margins are moving higher. After all, JPMorgan took 15% revenue growth in the quarter and turned it into nearly 30% pre-provision profit growth.

The company did all of this despite record low interest rates which hampered net interest margins and pushed net interest income lower by 4% year-over-year. And despite the U.S. economy being in “crawl” mode.

Broadly speaking then, JPMorgan’s earnings confirmed that this top-tier bank is doing everything right to weather the Covid-19 storm and adapt its business to these dynamic and volatile times.

Improving Economic Fundamentals

The only thing holding JPMorgan back in the quarter was the poor U.S. economic backdrop, defined by weak consumer spending and low interest rates. But that economic backdrop will gradually improve over the next few quarters.

Yes, right now, we are going in reverse in terms of the economic recovery. New York is essentially shutting its borders. California, Texas, Florida and many other states are rolling back reopening measures.

Still, these business shutdowns and mobility restrictions are temporary. A vaccine is coming. Soon. And when it does arrive, many of these restrictions will become a thing of the past.

Plus, America is only doing a better job at balancing virus mitigation efforts with attempts to maintain social and economic normalcy. For example, many cities in California are now turning streets into outdoor seating for restaurants, while retail shops and salons are increasingly moving their operations outside, too. Mask wearing is also becoming more ubiquitous, and that should be seen as a leading indicator for decreasing Covid-19 spread and easing economic restrictions.

So, throughout the back-half of 2020, I expect U.S. consumers, businesses and legislators alike to all get better at this balancing act. As they do, businesses will be able to conduct business on a quasi-normal basis, U.S. consumer spending trends will perk up and interest rates will head higher to reflect recovering economic activity… all while Covid-19 spread and negative impacts are mitigated.

To that end, JPMorgan’s fundamentals and growth trends will only improve going forward. As they do, JPM stock will move higher.

JPMorgan Stock to $100+

My numbers suggest that JPM stock is well on its way to $100+ soon.

The bank reported record-high 2019 earnings per share of $10.72. We all know fiscal 2020 earnings per share are going to get wiped out. But we also know that depressed 2020 earnings per share are not the new “normal”. That’s why it’s best to value JPM stock based on 2021 earnings potential.

At present, current consensus estimates on Wall Street call for 2021 earnings per share to come in around $8.50, which basically means the bank recovering 80% of its peak 2019 profits.

That seems entirely reasonable to me.

Historically, JPM stock usually trades at 12-times forward earnings. A 12-times multiple on $8.50 in 2021 earnings per share implies a 2020 price target for JPM stock of $102.

Meanwhile, if JPMorgan recaptures 95%+ of its earnings power by 2021 and nets $10+ in earnings per share, the same math implies a 2020 price target for JPM stock of $120+.

On that basis, I think JPM stock has a clear and visible runway to $100+ prices by the end of the year.

Bottom Line on JPM Stock

JPMorgan is the best bank on Wall Street, and JPM stock is the best bank stock to buy today.

Over the next several quarters, U.S. economic activity will improve. Bank sector fundamentals will get better. JPMorgan will lead the banking sector recovery. And JPM stock will pace a comeback in bank stocks.

Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not hold a position in any of the aforementioned securities.

Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not hold a position in any of the aforementioned securities.

Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not hold a position in any of the aforementioned securities.

Articles You May Like

Trump is attacking the wrong deficit if he hopes to right the economy
Starboard sees an opportunity to create value at Riot Platforms amid growth in hyperscalers
Why Short Squeeze Stocks May Be 2025’s Hidden Gems
Drone stocks are surging on Wall Street, led by Red Cat Holdings
Are These AI Stocks Ready for a Comeback?