The bank, during its annual Investor Day conference on Tuesday, outlined its long-term goals, which include an operating return on tangible common equity (ROTCE) of 15% to 16%, which is a slight reduction from the goal of 16% laid out a year ago.
But with the bank continuing to build capital, as required under the international Basel III agreement, with even more stringent requirements from U.S. regulators, the real news from Tuesday's presentation is that there really wasn't anything new.
"The ship is steady, and that should help the multiple," wrote Oppenheimer analyst Chris Kotowski in a client note on Tuesday following JPMorgan's presentation. The multiple is indeed quite low. JPMorgan's stock closed at $57.03 Tuesday and trades for 9.0 times the consensus 2015 earnings estimate of $6.35 a share, among analysts polled by Thomson Reuters. The consensus 2014 EPS estimate is $5.94 a share, compared to $4.35 in 2013, when the company entered into $17.5 billion in residential mortgage-backed securities settlements with government authorities and private investors, and a record $5.20 a share in 2012, despite more than $6 billion in pretax losses from the "London Whale" hedge trading debacle.
So the analysts are expecting JPMorgan to return to setting profit records this year, with the company finally turning its focus on improving its operations, rather than putting out regulatory fires. "[We do confess that it would be nice to see a 2014 result in which the reported numbers are the same as the "Ex Items") number," Kotowski wrote. He rates JPMorgan "outperform," with a $72 price target, implying 26% upside over the next 12 months.
According to Kotowski, the lowering of JPMorgan's ROTCE goal "was a truly minor tweak ... primarily from adding $10B of capital at the line of business level," to meet the requirement of a Basel III Tier 1 common equity ratio of roughly 10%.
With JPMorgan representing a "unique combination of quality and value, which normally don't go together," Kotowski said he sees the stock's forward price-to-earnings level climbing to about 11 times.
Jefferies analyst Ken Usdin rates JPMorgan a "buy," with a lower price target of $66, and wrote in a note to clients Wednesday that the bank's "walk" to a "normalized" earnings goal of $27 billion "still includes $2B of corporate litigation expense and does not give full credit to potential core business growth."
While JPMorgan's capital-build goal "implies modest capital deployment over the next year," Usdin expects the company to be primed and ready for a significantly higher deployment through higher dividends and share buybacks in 2015. "[Management] noted that buybacks are attractive at valuations up to 2x tangible book value (stock trades at 1.4x today), and we believe the share count can be reduced by 10%+ over the next several years." That's music to investors' ears, as a reduced share count leads to higher EPS and increased estimates from analysts, supporting higher share prices.
JPMorgan, in March 2013, was approved by the Federal Reserve to repurchase up to $6.0 billion in common shares through the first quarter of 2014. Morgan Stanley analyst Betsy Graseck in a client note on Tuesday estimated JPM would complete only $2.323 billion in buybacks through the first quarter. She expects the bank in March once again to gain Fed approval for $6 billion in common-share buybacks, but actually to complete $4.505 billion in buybacks through the first quarter of 2015.
In a note on Wednesday, Graseck wrote that JPMorgan's stock "looks cheap," at just 8.2 times her 2015 EPS estimate of $6.97. Graseck rates JPM "overweight," with a price target of $68, and wrote Wednesday that JPM had delivered an "Investor Day catalyst," with a better-than-expected credit outlook, "higher than expected headcount reductions and investment driving top-line growth opportunities."
JPMorgan's shares were down a nickel in late morning trading on Wednesday to $56.98.
This chart shows the performance of JPMorgan's stock against the KBW Bank Index (I:BKX) and the S&P 500
data by YCharts
-- Written by Philip van Doorn in Jupiter, Fla.
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