Wealth Management And Digital Banking Will Drive Future Value

Key Takeaways

• Expansion into Wealth Management and digital banking positions JPMorgan Chase for higher revenue with diversified, higher-margin income sources.
  
• Strong growth in Card Services, Investment Banking, and Asset Management indicates future profitability and client trust will boost revenue and earnings.
  
• JPMorgan Chase faces challenges such as deposit margin compression, regulatory pressures, and credit quality uncertainties, adversely affecting future revenue growth and shareholder returns.

Catalysts

Operates as a financial services company worldwide.

• JPMorgan Chase is continuing to expand its Wealth Management services, targeting the affluent sector, which can significantly increase revenue and diversify income streams with higher-margin advisory and management fees.
  
• The firm is experiencing record engagement in its Card Services & Auto segment with strong account acquisition and revolving balance growth, indicating future growth in net interest income and profitability.
  
• A continued increase in Investment Banking and Markets revenue, with advisory fees up 41% and total Markets revenue up 21% year-on-year, positions JPMorgan Chase to significantly benefit from favorable market conditions and an expanding deal pipeline, positively impacting revenue and earnings.
  
• Record levels of long-term net inflows in Asset & Wealth Management, up 18% to $4 trillion in AUM, demonstrate strong client trust and continued growth potential in client assets and management fees, boosting overall revenue and net margins.
  
• Strategic expansion in digital consumer banking and investments in technology for improved efficiencies are likely to support JPMorgan Chase's competitive advantage, leading to optimized costs and enhanced customer experience, which could enhance net margins and earnings.

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 3.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 34.1% today to 30.6% in 3 years time.
• The bullish analysts expect earnings to remain at the same level they are now, that being $56.9 billion (with an earnings per share of $22.72). 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 16.2x on those 2028 earnings, up from 11.5x today. This future PE is greater than the current PE for the US Banks industry at 10.4x.
• Analysts expect the number of shares outstanding to decline by 2.63% 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

• The presentation highlighted the challenges of deposit margin compression and lower deposit balances in certain segments, which could negatively affect JPMorgan Chase's future net interest income and revenues.
  
• The expected interest rate cuts in 2025 and their dampening effect on net interest income, causing NII ex Markets to decrease, could pressure earnings growth and net margins in the coming years.
  
• The company faces uncertainties related to credit quality, particularly in the context of economic conditions such as stagflation, which could lead to increased credit losses across consumer and corporate lending portfolios, impacting net income.
  
• Continued pressure on regulatory capital and liquidity requirements, including potential increases in the G-SIB surcharge, may necessitate higher capital retention, limiting capital available for deployment, which impacts potential for revenue growth and shareholder returns.
  
• Market volatility and uncertainties in asset prices and expectations were noted, suggesting that investor confidence in financial markets could fluctuate, impacting investment banking revenues and contributing to uncertainties in future earnings.

Valuation

• The assumed bullish price target for JPMorgan Chase is $292.4, which represents one standard deviation above the consensus price target of $260.12. 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 $185.8 billion, earnings will come to $56.9 billion, and it would be trading on a PE ratio of 16.2x, assuming you use a discount rate of 7.1%.
• Given the current share price of $234.34, the bullish analyst price target of $292.4 is 19.9% 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.