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4 Large Bank Stock Picks From Deutsche Bank

Shares of JPMorgan Chase closed at $35.17 Wednesday, returning 7% year-to-date, following a 20% decline during 2011.

The shares trade for 1.1 times tangible book value, according to Thomson Reuters Bank Insight, and for seven times the consensus 2013 earnings estimate of $5.21 a share. The consensus 2012 EPS estimate is $4.64. Based on a 30-cent quarterly payout, JPMorgan's shares have an attractive dividend yield of 3.41%.

JPMorgan reported second-quarter earnings of $1.9 billion, or $1.21 a share, increasing from $1.7 billion, for $1.19 a share, in the first quarter, but declining from $21 billion, or $1.27 a share, during the second quarter of 2011.

The company's second-quarter results included $4.4 billion in hedge trading losses, following CEO James Dimon's initial estimate of "slightly more than $2 billion" in trading losses, back in May.

Investors reacted positively, with the impression that JPMorgan had put most of its "London Whale" trading debacle behind it. There were several other highlights in the company's second-quarter earnings announcement:
  • Period-end commercial banking loans grew to $120.5 billion as of June 30, from $115.8 billion the previous quarter, and $102.7 billion a year earlier.
  • Mortgage revenue increased to $2.3 billion during the second quarter, from $2.0 billion during the first quarter, and $1.1 billion in the second quarter of 2011.
  • Total noninterest expense declined to $15.0 billion in the second quarter, from $18.3 billion the previous quarter, and $16.8 billion a year earlier, mainly reflecting a decline in litigation expenses, but also a reduction in compensation expenses to $7.4 billion, from $8.6 billion in the first quarter (the annual seasonal spike for bonuses), and $7.6 billion in the second quarter of 2011.

O'Connor's price target for JPMorgan chase is $43, and the analyst estimates the company will earn $4.78 a share this year, followed by EPS of five dollars in 2013, excluding debit valuation adjustments (DVA) and credit valuation adjustments (CVA).

The analyst said that Dimon's hints that JPMorgan Chase could resume its stock buybacks later this year "seems a bit optimistic in our view," while the company's view that it could achieve a Basel III Tier 1 common equity ratio of 9.5% by the end of 2012, even with $15 billion in buybacks, "seems aggressive."

JPM Chart JPM data by YCharts

Interested in more on JPMorgan Chase? See TheStreet Ratings' report card for this stock.
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