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JPMorgan Chase (JPM): 2018 Is off to a Good Start, Says CEO


JPMorgan Chase  (NYSE:JPM) released the results from its first quarter Friday, beating analyst earnings expectations on an adjusted basis with $2.37 a share. Wall Street analysts had been expecting $2.28 a share. JPM shares reacted to the earnings announcement, rising nearly 1% in pre-market trading

Here are the rest of the highlights:

  • Net income was $8.7 billion, an increase of 35%
  • Net revenue was $28.5 billion, up 10%. Net interest income was $13.5 billion, up 9%, driven by the impact of higher rates and loan growth, partially offset by lower Markets net interest income. Noninterest revenue was $15.1 billion, up 12%, driven by higher Markets revenue, lower Card net acquisition costs, higher auto lease income and higher management fees in Asset & Wealth Management (“AWM”), partially offset by lower investment banking fees.
  • Noninterest expense was $16.1 billion, up 5%, driven by higher compensation expense, volume-related transaction costs in CIB Markets and auto lease depreciation.
  • The provision for credit losses was $1.2 billion, down from $1.3 billion in the prior year. The consumer provision reflected higher net charge-offs in Card in the current quarter, in line with expectations. The prior year included a write-down of the student loan portfolio which was sold in 2017. In Wholesale, the provision for credit losses was a benefit, reflecting net reserve releases of $170 million in the current quarter, driven by a reserve release in the Oil & Gas portfolio related to a single name.
  • Income tax expense decreased by approximately $240 million despite a $2.0 billion increase in pre-tax income, reflecting the
    lower income tax rate as a result of the enactment of the Tax Cuts & Jobs Act (“TCJA”).
  • In the first quarter of 2018, JPMorgan Chase also adopted new accounting guidance on revenue recognition6 , which resulted in revenue and expense increasing by $313 million in the current quarter, predominantly in AWM and the remainder in CIB; net income was not impacted. Prior periods have been revised accordingly.

Commentary

Jamie Dimon, Chairman and CEO, commented on the financial results, “2018 is off to a good start with our businesses performing well across the board, driving strong top-line growth and building on the momentum from last year. We have been outpacing the industry on consumer deposit growth while attracting significant net new money and growing client investment assets 13%. Card sales and merchant processing volume both grew double digits, reflecting our investments in new products and innovation focused on our customers’ needs.”

“In the Corporate & Investment Bank we maintained our #1 rank in Global IB fees, including #1 in M&A which grew share in every region. A strong Markets performance was driven by record Equities revenue. Our multi-year investments in Treasury Services and Securities Services are paying off, with revenue up 14% and 16% in those businesses. Commercial Banking continued to see revenue growth driven by rates and good capital markets flows. Despite client sentiment remaining high, the environment is intensely competitive and lending was flat for the quarter. Our Asset & Wealth Management business delivered strong results, with long-term net inflows this quarter across all regions, even as volatility returned to the market.”

Dimon concluded, “The global economy continues to do well, and we remain optimistic about the positive impact of tax reform in the U.S. as business sentiment remains upbeat, and consumers benefit from job and wage growth. We are committed to doing our part – and this company can be an engine that helps drive inclusive economic growth for all Americans, including our $20 billion long-term investment in our employees and communities, and we’re working to tackle broader issues, like healthcare, that can help the whole country.”

Analyst Ratings

JPM has been the subject of a number of recent research reports. In a report issued on April 11, HSBC analyst Alevizos Alevizakos initiated coverage with a Hold rating on JPM and a price target of $111, which represents a slight downside potential from current levels. Separately, on April 6, Vining Sparks’ Marty Mosby maintained a Buy rating on the stock and has a price target of $130.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Alevizos Alevizakos and Marty Mosby have a yearly average return of 12.8% and 17.5% respectively. Alevizakos has a success rate of 67% and is ranked #1960 out of 4771 analysts, while Mosby has a success rate of 81% and is ranked #9.

Overall, 4 research analysts have assigned a Hold rating and 7 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $125.80 which is 11% above where the stock closed yesterday.