JPMorgan Earnings Preview: 2024 Will Be Hard to Compare to 2023 (undefined:JPM)
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Last night’s Citigroup (C) earnings preview was written, with Citi and JPMorgan (New York Stock Exchange: JPM), it is interesting to see the differences between the two big banks within the same sector. Citi had little to do. No revenue growth, valuation is about book value and discount to tangible book value. Citi’s historical ROE is in the mid-single digits, well below its peers, and the stock has been in a slump for several years and has significantly underperformed. The S&P 500 has been on the rise for a long period of time, especially since 2008.
JPM, on the other hand, has been a symbol of organizational stability and has had Jamie Dimon as the banking industry’s top CEO for the past 10 to 15 years. Since 2010, JPM has grown EPS at an average of 18% per year. Consistently generated returns on tangible common stock in the mid-teens or higher.
Still, in investing, a good case can be made that Citi is a better stock (based on valuation and upside potential) even though JPM is a much better bank.
The risk for JPMorgan at this point is execution. The current sell-side consensus expects EPS growth to be flat in 2024 and 2025, while the stock is sporting multiples of 13x and 12x upon its earnings release on Friday, April 12, 2024.
JPM’s book value (BV) and tangible book value (TBV) are 1.9x and 2.32x (stock trading at about $200), which are the highest BV and TBV values among large banks.
JPM recently increased its dividend and appears to be buying back stock, which could help in the first quarter of 2024.
The biggest upside for 2023 (in my opinion) is that JPMorgan acquired First Republic (OTC:FRCB) in a special auction in May ’23. This has been a significant boost for JPMorgan and is expected to add $500 million annually to JPMorgan’s bottom line.
(Based on shares outstanding as of 12/31/23, if my calculations are correct, this equates to $0.17 per share per year added to First Republic’s JPM EPS.)
Performance:
Benchmarking JPM over the past 13 years versus the S&P 500 as of 3/31/24, JPMorgan’s stock has underperformed the S&P 500 by less than 100 basis points per year over the past 13 years.
JPM has been in the top 10 by its clients for most of the past decade and now. (Minimum cost basis is $35 per week.)
Summary/Conclusion: Take a look at Corporate and Investment Banking (CIB), which accounted for 27% of total net and operating income as of December 31, 2023, with its Friday morning earnings call for the first quarter of 2024.
Given how high corporate yields have been and how tight corporate quality credit spreads have been over the past few years, corporate bond issuance hit a record in the first quarter of ’24.
CIB’s growth has slowed within JPMorgan following a strong COVID 2021, but investors could see some upside in the banking sector due to the potential return of bond issuances and IPO markets.
Expect credit to be solid (written about Citi last night). Jamie is very conservative about loan loss reserves and has actually been increasing bank reserves for 2022 and 2023, so they may decline this year.
Jamie said that if the national unemployment rate reaches 6% in 2022, JPM may need to add $4 billion to $6 billion in loan loss reserves (LLR) for that type of economy. If not, LLR may slow down given the surprising strength of the U.S. economy.
JPM has guided for 2024 net interest income (NII) of $88 billion. Given the stability of interest rates, you would think the first quarter of 2024 would be easily within reach.
Corporate lending is growing in the mid-single digits. Again, given the strength of the U.S. economy, there’s no reason to think that number won’t be reached.
The problem is:
- Actual 2023 EPS: $15.84 (32% YoY growth)
- 2024 EPS estimates: $15.91 (0% YoY growth expected)
- 2025 EPS estimates: $16.31 (expected to increase 3% YoY EPS)
2024 is difficult to compare, but $15.91 is likely a conservative EPS (taking into account U.S. employment) if the investment banking business improves, the remaining businesses continue to serve, and credit issues do not appear imminent. Estimated for this year.
Ultimately, I think JPM can earn $20 in EPS over the next few years, but the stock rarely looks good by traditional bank valuation metrics.
Dr. David Kelly, JPMorgan’s chief global strategist, may have summed up the U.S. economy best when he said earlier this year that, as far as JPM research work can tell, there are no structural imbalances or excesses. Disrupt the American economy now. Perhaps he was talking about the technology and large-cap growth bubble of the late 1990s or the mortgage/housing crisis of 2008. Everyone is interested in commercial real estate and CMBS issues, but so far it doesn’t seem “systematic.” .
JPMorgan has expanded technologically. The stock price went from $100 in mid-2022 to close to $200 in early April 2024. This is a huge rebound in 21 months.
None of this is advice or recommendations. Past performance is no guarantee of future results. Investments may involve loss of principal, even for a short period of time. Markets can be volatile and change quickly. All EPS and revenue data comes from LSEG.
Thanks for reading.
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Editor’s note: The summary bullet points for this article were selected by Seeking Alpha editors.
