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JPMorgan Is 'Value Investors' Dream': Sterne Agee

NEW YORK ( TheStreet) -- JPMorgan Chase (JPM - Get Report) "remains on track to increase tangible book at a double-digit pace and deliver a mid-teens return on tangible equity," according to Sterne Agee analyst Todd Hagerman.

The analyst on Wednesday increased his 12-month price target for JPMorgan's shares to $64 from $54, showing potential upside of 20% from Tuesday's closing price of $53.49.

Hagerman in a note to clients raised his 2013 operating earnings estimate for JPMorgan to $5.80 a share from $5.50, and raised his 2014 EPS estimate to $6.15 from $5.85. "After a relatively soft and erratic April, capital markets activity, consumer confidence, and housing have thus far registered ahead of expectations this quarter," he wrote.

Sterne Agee is out in front of the consensus EPS estimates among analysts polled by Thomson Reuters of $5.70 for 2013 and $5.95 for 2014.

JPMorgan earned $6.5 billion, or $1.59 a share during the first quarter, increasing from $5.7 billion, or $1.39 a share, in the fourth quarter, and $4.9 billion, or $1.19 a share, during the first quarter of 2012. Results during the most recent quarter were boosted by a $1.2 billion release of loan loss reserves in the company's Consumer & Community Banking segment.

Hagerman expects a continued lift to earnings from credit leverage, as "credit quality improvement continues to outpace expectations following the severity of the financial downturn."

A major challenge for JPMorgan Chase and most other large mortgage lenders is the slowdown in refinancing activity and the narrowing of gain-on-sale spreads as long-term interest rates rise. JPMorgan's first-quarter mortgage production revenue, which excludes loan repurchase losses, was $401 million, declining from 25% from a year earlier.

Despite that challenge, along with low overall loan growth, "JPM's core business [asset management, large corporate / middle market lending and investment banking] units remains strong," according to Hagerman.

"We find it difficult to ignore JPM's discounted valuation given its proven ability to generate excess capital," Hagerman wrote.

While the Federal Reserve in March only gave conditional approval for JPMorgan Chase's 2013 capital plan, the regulator did approve common share repurchases of up to $6 billion through the first quarter of 2014. The Fed also approved an increase in JPMorgan's quarterly dividend to 38 cents a share from 30 cents, for a yield of 2.84%, based on Tuesday's closing share price.
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