This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

JPMorgan's Valuation Still Makes Sense

NEW YORK ( TheStreet) -- Apparently JPMorgan Chase (JPM - Get Report) has not won over the investors it lost from the embarrassing "London Whale" trade last year. Despite the great job the bank has done to mitigate the damage, investors remain hesitant to embrace its recovery.

However, JPMorgan is still a dominant power in the financial sector. Very few can match JPMorgan's performance in terms of profitability and credit quality. Although the bank is not out of the woods by any stretch, the current valuation looks good. But management has to show better growth to get investors to believe.

On balance, JPMorgan's first-quarter report was good, not great. As with rivals Bank of America (BAC) and Citigroup (C), there were plenty of ups and downs this quarter.

For instance, although JPM posted strong revenue of $25.8 billion that represented a 6% sequential increase, reported revenue was down 3% year over year.

Management said the year-over-year decline was due to soft mortgage banking and the continuation of production margin compression. Surprisingly, JPMorgan was outperformed by Citigroup, which posted 2% year over year growth in core revenue. Along similar lines, JPMorgan's net interest income wasn't any better.

As management alluded to, there were increased signs of margin erosion by a 6% year-over-year decline, and 2% sequentially. Likewise, net interest margin (NIM) fell almost by one-quarter point year over year. Initially, I was concerned by this. But there were NIM struggles across the entire sector.

For instance, Wells Fargo (WFC), which has had past struggles with NIM, didn't fare any better, posting a NIM decline of 33 basis points, which was also down eight basis points sequentially. What's more, Wells Fargo's net interest income also suffered a 3% decline year over year. Even though Citi showed some outperformance in revenue, Citi still posted a NIM decline of four basis points year over year.

So investors of JPMorgan can take solace in the fact that JPM's margin struggles looks to be an industry trend. Nevertheless, management deserves credit here for navigating this period of weak margins, which still lead to record profits of $6.5 billion, or $1.59 per share. But this is certainly a situation that bears watching going forward, especially if the revenue trajectory does not reverse course.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
JPM $67.17 0.46%
GOOG $751.00 0.38%
TSLA $229.62 -0.01%
YHOO $32.76 -1.20%
AAPL $117.81 -0.19%


Chart of I:DJI
DOW 17,794.69 -18.70 -0.10%
S&P 500 2,089.33 +0.46 0.02%
NASDAQ 5,121.2410 +5.0980 0.10%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs