Stock Analysis

JPMorgan Chase (NYSE:JPM) is Bracing for the Storm Clouds on the Horizon

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JPMorgan Chase & Co (NYSE: JPM) just announced its latest earnings results, missing the estimates for the first time in 2 years. As the market digests the results, most notably markdowns related to Russia, the stock sank to a 14-month low.

Q1 2022 earnings

  • Revenue: US$31.59b
  • Net income: US$8.28b / US$2.63 per share

Credit costs were US$1.5b with US$902m for potential loan losses and US$524m for costs related to the war in Ukraine

View our latest analysis for JPMorgan Chase

Highlights by Divisions

  • Consumer and Community: US$12.23b in net revenue (-2% Y/Y)
  • Corporate and Investment: US$13.53b in net revenue (-7% Y/Y)
  • Commercial: US$2.4b (no changes)
  • Asset and Wealth Management: US$4.3b in net revenue (+6% Y/Y)

Reflecting on the earnings results, CFO Jeremy Barnum noted some of the setbacks in performance:

  • Mortgage loans falling with the rise in rates
  • Card & Auto is down due to higher acquisition costs and a lack of vehicle supplies
  • Debt & Equity underwriting fees are down due to market volatility and lower issuance activity

Yet, there are some positives as well, as analyst Glenn Schorr (Evercore ISI) noted an increase in average loans, average deposits, debit/credit card sales volume, and long-term flows in asset & wealth management.

CEO Jamie Dimon stated that while he's cautious about the geopolitical and economic challenges due to supply chain problems, high inflation, and war, he believes that the bank has enough capital and healthy margins to get through those issues. He added that the bank won't be deploying any excess liquidity.

A Look at the Low P/E Ratio

A price-to-earnings (P/E) ratio of 8x is well below the average, as around half of the companies have P/E ratios above 17x and even P/Es above 36x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward.

NYSE: JPM Price Based on Past Earnings April 14th, 2022

Want the complete picture of analyst estimates for the company? Then our free report on JPMorgan Chase will help you uncover what's on the horizon.

To justify its P/E ratio, JPMorgan Chase would need to produce anemic growth that's substantially trailing the market. Retrospectively, the last year delivered an exceptional 73% gain to the company's bottom line. The recent solid performance means it was also able to grow EPS by 70% in total over the last three years. Therefore, it's fair to say that the recent earnings growth has been very good.

The Final Word

Despite rising interest rates, bank stocks have been hit in recent months. With the flattening yield curve (or even inverted) signaling a possible recession, the statement from JP Morgan executives about "storm clouds on the horizon" doesn't come as a surprise.

Looking at the current price declines, we can see they're due to analysts' expectations of declining earnings growth at a rate of 3.4% per annum (over the next 3 years).

Yet there are 2 positives we see: solid margins and the reluctance to take on additional risks by deploying excess liquidity. Finally, looking into our database, we can see that the bank is well-positioned to absorb any potential turmoil.

Every company has risks, and we've spotted 2 warning signs for JPMorgan Chase you should consider, and if these risks make you reconsider your opinion about the stock, explore our interactive list of high-quality stocks to get an idea of what else is out there.

Valuation is complex, but we're helping make it simple.

Find out whether JPMorgan Chase is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Stjepan Kalinic

Stjepan Kalinic

Stjepan is a writer and an analyst covering equity markets. As a former multi-asset analyst, he prefers to look beyond the surface and uncover ideas that might not be on retail investors' radar. You can find his research all over the internet, including Simply Wall St News, Yahoo Finance, Benzinga, Vincent, and Barron's.


JPMorgan Chase

JPMorgan Chase & Co. operates as a financial services company worldwide.

Flawless balance sheet with solid track record and pays a dividend.