Most analysts agree that financial stocks, and especially banks, will perform well this earnings season. In fact, with the exception of perhaps Bank of America Corp (NYSE:BAC), most of them have fared quite well. Some have been especially good, like Goldman Sachs Group, Inc. (NYSE:GS), which has blown it out of the park ($5.60 EPS versus the analyst consensus of $3.66 EPS). No wonder shares of Goldman have jumped more than 6% after the earnings report. And, at a P/E of 10.23x, the stock is still far from unattractive.
There has been, however, another bank that has a good earnings report out, but it has been overlooked by the market: JPMorgan Chase & Co. (NYSE:JPM). On Jan. 21 the American bank reported net income of $5.7 billion (up from $3.7 billion last year), and EPS of $1.39, up from last year’s $0.90, beating the analyst estimates of $1.16 (that’s roughly a 20% beat). The stock, however, barely moved on the days that followed the report, which could signal that the market has overlooked this one.
But is the market wrong? How does JP Morgan’s stock look like?
- It trades at 8.93x earnings, which is a very low valuation, even for financial stocks. Forward P/E is even lower (at only 8.09x). From a valuation perspective, the stock is very cheap.
- It currently has an average target price of $51.29. That implies an upside potential of more than 10%.
- The bank has posted record profits three years in a row.
- They have successfully returned to safer business areas (such as mortgages and deposits), and yet are still a strong player in investment banking.
- When compared to its main competitors, JPM has an edge:
|Stock||P/E||Forward P/E||Average Price Target||Implied Upside from Avg PT||Dividend Yield|
|Bank of America||44.56||8.70||$12||5.72%||0.36%|
As one can see in the above table, JPM is more attractive than its main competitors in all areas except “Implied Upside from Average Price Target,” where Wells Fargo’s implied upside is very slightly above JP Morgan’s. With the exception of Bank of America’s current P/E, all stocks seem cheap, but JP Morgan is by far the cheapest of the lot.