Asset And Wealth Management And Banking Will Stimulate Future Prosperity

Key Takeaways

• Strong growth in asset management and market resilience position JPMorgan Chase for future revenue expansion amid volatile conditions.
  
• Strategic investment capacity and technological expansion indicate potential for enhanced future earnings through buybacks, dividends, and operational efficiency.
  
• Elevated risks and expenses, coupled with compressed margins, may pressure JPMorgan's earnings and growth amidst uncertain market conditions and economic scenarios.

Catalysts

Operates as a financial services company worldwide.

• JPMorgan Chase's strong growth in asset and wealth management, driven by a 15% increase in AUM and client assets, positions it well for future revenue expansion as more funds flow into managed products.
  
• The firm is benefiting from record performance in equities within its markets business, with total market revenue up 21% year-over-year, suggesting resilience and potential for revenue growth in volatile market conditions.
  
• Increased investment banking fees, up 12% year-over-year, indicate a potential catalyst for future earnings growth as client engagement remains high, even amid current market uncertainties.
  
• Significant excess capital, with the capability to deploy $30 billion to $60 billion, allows JPMorgan Chase to pursue strategic investments and return capital to shareholders, potentially enhancing future earnings through buybacks and dividends.
  
• Continued technological investment and expansion in branches and banking services demonstrate JPMorgan Chase's commitment to capturing market share and improving operational efficiencies, which may lead to improved net margins in the long term.

JPMorgan Chase Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on JPMorgan Chase compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming JPMorgan Chase's revenue will grow by 3.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 34.5% today to 30.2% in 3 years time.
• The bullish analysts expect earnings to reach $56.5 billion (and earnings per share of $22.31) by about April 2028, down from $58.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 17.7x on those 2028 earnings, up from 11.2x today. This future PE is greater than the current PE for the US Banks industry at 10.7x.
• Analysts expect the number of shares outstanding to decline by 3.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.09%, as per the Simply Wall St company report.

JPMorgan Chase Future Earnings Per Share Growth

Risks

• Increased probability weightings for downside economic scenarios in the CECL framework suggest caution due to elevated risks, potentially impacting future net margins and earnings through higher credit loss provisions.
  
• The firm experienced deposit margin compression and a decline in NII ex Markets, driven by lower rates and deposit balances, which could exert pressure on revenue and net interest margins if these conditions persist.
  
• JPMorgan's cautious stance on the investment banking outlook due to uncertain market conditions could impact future revenue growth from its investment banking division.
  
• Credit costs rose to $3.3 billion with net charge-offs of $2.3 billion, which could weigh on net earnings if economic conditions deteriorate and lead to higher-than-expected defaults.
  
• Increased expenses driven by higher compensation, legal costs, and other factors could pressure net earnings if revenue growth does not keep pace with rising costs.

Valuation

• The assumed bullish price target for JPMorgan Chase is $323.71, which represents two standard deviations above the consensus price target of $257.75. This valuation is based on what can be assumed as the expectations of JPMorgan Chase's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $330.0, and the most bearish reporting a price target of just $180.51.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $187.1 billion, earnings will come to $56.5 billion, and it would be trading on a PE ratio of 17.7x, assuming you use a discount rate of 7.1%.
• Given the current share price of $235.59, the bullish analyst price target of $323.71 is 27.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.