JPMorgan Chase Wins Again

NEW YORK ( TheStreet) -- JPMorgan Chase ( JPM) was again winner among the nation's largest banks on Wednesday, with shares rising over 1% to close at $53.63.

The strong action for JPMorgan's stock -- following a vote of confidence in CEO James Dimon by the company's shareholders on Tuesday -- ran counter to the broad market. The Dow Jones Industrial Average was down 0.5%, while the S&P 500 ( SPX.X) and Nasdaq Composite saw declines of 1%.

In a strong bull market so far this year, one of the biggest questions for investors is when the Federal Reserve will finally pull back on its economic stimulus efforts, and how dramatically the central bank's policy will change. The Fed has kept the short-term federal funds rate in a range of zero to 0.25% since late 2008. Since September, the Fed has been expanding its balance sheet through net monthly purchases of $85 billion in long-term securities, in an effort to hold long-term rates down.

During testimony before the Joint Economic Committee of Congress, Bernanke on Wednesday repeated the stance of the Federal Open Market Committee (FOMC) which has said after recent meetings that assuming inflation was kept in check, the federal funds rate would stay in its current range at least until the U.S. unemployment rate remained above 6.5%.

"Recognizing the drawbacks of persistently low rates, the FOMC actively seeks economic conditions consistent with sustainably higher interest rates," Bernanke said. "Unfortunately, withdrawing policy accommodation at this juncture would be highly unlikely to produce such conditions. A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further."

During a question-and-answer session with members of the congressional panel following his prepared testimony, Bernanke discussed the timing of a possible slowdown in securities purchases by the Federal Reserve. "If we see continued improvement and we have confidence that that's going to be sustained then we could in the next few meetings . . . take a step down in our pace of purchases," he said, according to a Reuters report. "If we do that it would not mean that we are automatically aiming toward a complete wind down. Rather we would be looking beyond that to see how the economy evolves and we could either raise or lower our pace of purchases going forward," he said.

Later on Wednesday the minutes of the last FOMC meeting on April 30 and May 1 were released, indicating that the committee as a whole might lean toward curtailing asset purchases more quickly than Bernanke's comments indicated:

"A number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently strong and sustained growth; however, views differed about what evidence would be necessary and the likelihood of that outcome," according to the minutes.

The KBW Bank Index ( I:BKX) was down 1% to close at 60.91.

JPMorgan Chase

Shares of JPMorgan have returned 24% this year, following a 36% return during 2012. The shares trade for 9.0 times the consensus 2014 earnings estimate of $5.94 a share, among analysts polled by Thomson Reuters. This is the cheapest forward price-to-earnings valuation among the "big six" U.S. banks:
  • Citigroup's (C) shares on Wednesday closed at $50.99 and traded for 9.6 times the consensus 2014 EPS estimate of $5.32.
  • Morgan Stanley (MS) closed at $24.71 and traded for 9.7 times the consensus 2014 EPS estimate of $2.54.
  • Shares of Bank of America (BAC) closed at $13.30 and traded for 10.3 times the consensus 2014 EPS estimate of $1.29.
  • Wells Fargo (WFC) closed at $40.11 and traded for 10.3 times the consensus 2014 EPS estimate of $3.90.
  • Goldman Sachs (GS) closed at $159.41 and traded for 10.4 times the consensus 2014 EPS estimate of $15.27.


With Dimon successfully shrugging off the attempt by some shareholders to split his dual roles as JPMorgan's CEO and chairman of the board of directors, Sterne Agee analyst Todd Hagerman wrote in a note to clients on Tuesday that "the incremental headline risk associated with a potential management re-shuffling should subside, with an increased investor focus on the company's otherwise solid operating results."

Hagerman rates JPMorgan Chase a "buy," with a price target of $54.00.

KBW analyst Christopher Mutascio on Wednesday reiterated his "outperform" rating for JPMorgan Chase, while raising his price target for the shares to $58 from $54.

"Our original target price of $54 was on the conservative side," Mutascio wrote in a note to clients, "representing less than 9.5x our 2014 EPS estimate of $5.80, as we were concerned about the lingering impact the London Whale incident would have on the company's P/E multiple. But, with the market willing to put a P/E multiple of 12.0x on names like KeyCorp ( KEY) , we don't think it is unreasonable for JPM to trade at 10.0x -- which is the low end of our large cap banks' historical range of 10.0x-12.0x."

JPM Chart JPM data by YCharts

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

-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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