Current Developments Surrounding JPMorgan's Shares
JPMorgan Shares (NYSE: JPM) have surged approximately 48% so far this year, outpacing the 28% growth of the S&P500 index during the same duration. Interestingly, JPMorgan's rival, Wells Fargo (NYSE: WFC), has fared even better, rising by 50% in the same timeframe. Let's delve into JPM's recent performance and projections.
JPMorgan surpassed market expectations in the third quarter of 2024 financial year. The bank reported total income of $42.7 billion, a 7% increase compared to the previous year. The uptick in net interest income was attributed to adjustments in the account mix, increased credit card balances, and higher wholesale deposits. Meanwhile, non-interest revenue, excluding the markets segment, witnessed a robust 17% growth, primarily driven by enhanced asset management fees and improved investment banking performance. However, net income dropped slightly by about 2% to $12.9 billion, due to a rise in credit loss provisions. Curiously, why has VALE dropped by 40% this year? Check out What's Up with VALE Stock?
Impressively, JPM shares have been delivering better returns than the broader market for the last three years. Returns for the stock were 28% in 2021, -13% in 2022, and 31% in 2023. On the other hand, the Trefis Quality Portfolio, consisting of 30 stocks, has been less volatile. It has outperformed the S&P 500 annually over the same period. Why does that happen? The stocks in the Quality Portfolio offered superior returns with lower risk compared to the benchmark index, as reflected in the Quality Portfolio's performance metrics. Amidst the present uncertain macroeconomic climate, what's in store for JPMorgan?
Moving forward, Q4 net interest income could improve, in part thanks to the Fed's rate cuts which commenced in September. Additionally, the re-election of Donald Trump as U.S. president is projected to benefit the financial sector, as his administration's deregulation approach could result in reduced bank oversight, leading to boosted revenues, increased deal volumes, and reduced compliance costs, thereby enhancing profitability. Trump's continued support for tax cuts could also positively affect bank profits, like JPMorgan's. Following the election, Republicans, known for advocating for free markets, gained control of both the Senate and the House of Representatives. This could potentially lead to lower interest rates and higher political stability, boosting investment banking activity, along with increased debt and equity issuances and M&A-related activity.
Regardless, JPMorgan remains one of the top-tier banking names, with a substantial scale. However, in our opinion, the shares are overvalued. JPM shares are trading at more than 2.5 times tangible book value (company assets, less goodwill), which we view as excessive. At its current cost of $245 per share, JPM is priced about 15% higher than Trefis' assessment of JPMorgan's valuation.
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JPMorgan's robust third-quarter performance in 2024 included a 7% increase in total income to $42.7 billion, driven by a 17% growth in non-interest revenue and a 1% increase in net interest income. Despite the slight decrease in net income, JPMorgan's revenue continues to outperform the market, raising questions about JPMorgan's valuation in light of its current share price being 15% higher than Trefis' assessment.
In light of JPMorgan's impressive performance and the potential benefits of Trump's policy changes, some investors might question whether JPMorgan's shares are indeed overvalued as suggested by Trefis' valuation analysis.
