After Earnings, Is JPMorgan Chase Stock a Buy, a Sell, or Fairly Valued? (2024)

The company is still highly profitable, but Fed rate cuts could dampen its outlook.

JPMorgan Chase JPM released its second-quarter earnings report on July 12. Here’s Morningstar’s take on JPMorgan’s earnings and our outlook for the stock.

Key Morningstar Metrics for JPMorgan Chase

• Fair Value Estimate: $168.00
• Morningstar Rating: 2 stars
• Economic Moat: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of JPMorgan Chase’s Q2 Earnings

• JPMorgan is undoubtedly the strongest bank franchise under our coverage fundamentally, and it should hold up better than other names amid any turbulence in the sector. For investors seeking the lowest-risk option, JPMorgan still fits the bill, but in our view, its expected returns reflect that lower risk.
• CEO Jamie Dimon has positioned JPMorgan conservatively through his highly publicized statements on uncertainties related to monetary policy, the United States’ large fiscal deficit, geopolitics, and inflation. The bank should hold up relatively better during any black swan event, such as banking turmoil or a recession.
• We agree with some of the larger points Dimon has been making and we like JPMorgan’s conservatism, but our concern remains its valuation. The bank’s stock materially outperformed its money-center peers and the overall US bank index as the Federal Reserve started raising interest rates in 2022. It looks expensive compared with previous multiples—even more so if we adjust for its mid-cycle level earnings.
• JPMorgan is investing more heavily than its peers. Management’s thesis is that the company can continue to take share and deliver above-average revenue growth rates over the longer term. The bank is seeing better revenue generation and profitability than its peers, and it can afford to spend more, with today’s investments reinforcing its competitive positioning. The investments can result in decent returns for shareholders, though the expected market share gains from increased investments are far from certain.

Fair Value Estimate for JPMorgan Chase

With its 2-star rating, we believe JPMorgan’s stock is overvalued compared with our long-term fair value estimate of $168. We plan to increase that estimate by a mid-single-digit percentage as we fully incorporate the second-quarter results. Approximately half this increase can be attributed to the time value of money, and the other half to interest rates remaining higher for longer than the market anticipated. Our overall thesis on the bank hasn’t changed, as we believe the current valuation remains demanding and that potential investors should wait for a better entry point.

Read more about JPMorgan Chase’s fair value estimate.

Economic Moat Rating

We believe JPMorgan possesses a wide moat based on cost advantages and switching costs. It’s the largest US money center bank by assets, and it tends to have a leading share and operations in almost all the areas in which it competes. JPMorgan is one of the leading investment banks in the world, is one of the largest US issuers of credit and debit cards, is one of the top US-based merchant acquirers, has one of the largest global trading desks, is one of the larger global custodians, has one of the larger commercial banking franchises across business sizes, has a leading consumer franchise with products across over 60 million US households, and is one of the largest asset managers in the world, with assets under management of nearly $3 trillion.

Even accounting for the bank’s higher capital requirements compared with peers, we have a high degree of confidence that it will consistently earn returns that exceed its 9.5% cost of equity through the cycle. The increasing importance of scale and scope should help maintain the bank’s wide moat for some time, along with technological changes.

Read more about JPMorgan Chase’s economic moat.

Financial Strength

We think JPMorgan Chase is in sound financial health. Its common equity Tier 1 ratio stood at 15.0% as of December 2023, versus a fully phased-in minimum of 11.9% (based on 2023 SCB results and an estimated 4.5% GSIB surcharge for 2024). The bank’s supplementary leverage ratio was 6.1% as of the end of 2023, over the minimum of 5%. JPMorgan’s liabilities are prudently diversified, with more than half of assets funded by deposits and the remaining liabilities comprising long-term debt, repurchase agreements, commercial paper, and trading liabilities.

Read more about JPMorgan Chase’s financial strength.

Risk and Uncertainty

An investment in JPMorgan entails a large amount of regulatory and macroeconomic risk. Compliance costs are high, the bank is large and complex, and it’s a prime target for regulators seeking fines and litigants seeking compensation over alleged misdeeds. The bank’s profitability is also affected by cycles in interest rates, credit, and debt, which are outside management’s control.

Because of JPMorgan’s diversified revenue streams, which showed just how stable revenue can be even during the pandemic-driven downturn, we assign the bank a Medium Uncertainty Rating. The bank’s complexity can increase uncertainty for projections, but we believe its business model’s underlying stability and strength offset this.

Read more about JPMorgan Chase’s risk and uncertainty.

JPM Bulls Say

• JPMorgan has emerged as the most dominant bank in the United States. With a leading share in many aspects of banking and financial services, it should be in an advantageous position for years to come.
• With JPMorgan, you can sleep well at night and not worry about its balance sheet, regulatory woes, or deposit flight.
• JPMorgan is investing heavily in organic expansion opportunities and distribution platforms, which should drive additional share gains over the next decade and secure the best competitive position among its peers.

JPM Bears Say

• While higher interest rates are great, they are a double-edged sword. If the higher NII and solid economy narrative ever begin to reverse, banking profitability and sentiment will suffer.
• Heavy investments in organic expansion have increased expenses and hurt results, and there are no guarantees about what revenue they will generate in the future, or when. Revenue and share payoffs are hard to predict 10 or even five years out in this competitive industry.
• We may not be done with higher investment spending, and negative expense surprises could still lurk around the corner.

This article was compiled by Leah Breakstone.