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JPMorgan's Valuation Still Makes Sense

It wasn't all bad news. On the positive side, JPMorgan's strong showing in trading, although not a surprise, was able to offset some of the operational deficits. Likewise, management showed excellent fiscal awareness during the quarter as expenses declined more than 4% year over year.

What's more, although JPMorgan fell short on estimates for its pre-provision net revenue (PPNR), I'm willing to give management more credit for the fact that PPNR came in at double-digits. By contrast, Wells Fargo's PPNR advanced just 1% year over year and actually dropped 7% sequentially due a 4% increase in expenses.


Aside from the strong showing in trading business, JPM still has some work to do to perk up the bank's other segments. With growth looking pretty lethargic across the board, I wonder if JPM will turn to the old, reliable merger and acquisition discussions. This is often the first idea to get growth going again.

However, management's comments didn't suggest any type of deal was on the table. That said, it was nonetheless encouraging management didn't seem too rattled nor concerned about the subpar first-quarter results. Given that the performance was on-par with the rest of the sector, this stance was understandable.

Here's Making Sense

The results of this quarter notwithstanding, JPMorgan still has a strong business in investment banking, mortgages and retail banking. If the bank can continue to produce solid return on equity in the low-to-mid single-digits coupled with a discount rate of 9.5%, fair value on the stock can reach $55.

Given the potential for share buybacks over the next several quarters, along with an improving balance sheet, investors can still get a 20% premium just by being patient.

At the time of publication, the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Stock quotes in this article: JPM, BAC, C, WFC 
Richard Saintvilus is a private investor with an information technology and engineering background and the founder and producer of the investor Web site Saint's Sense. He has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.

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