Is Dick Bove Right About JPMorgan Chase & Co. (JPM) Becoming Bigger Than Apple Inc. (AAPL)?

So today, I am going to come across as a little controversial. I truly do respect Dick Bove, and I honestly believe he is a brilliant analyst. I, like him, have covered banks. Believing that banks were undervalued, I have said time and time again that banks would be a compelling investment opportunity.

Dick Bove Vice President of Equity Research at Rafferty Capital states in an interview:

For JPMorgan Chase to become the most profitable company, is going to take a few years. But I think by next year, it’s very possible that JPMorgan Chase could be the third most profitable company in the country, supplanting Chevron. I think that Apple might be easier than Exxon (NYSE:XOM)Mobil, to supplant in term of net income. Exxon is at the top, and I think it’s going to be extraordinarily difficult to supplant Exxon. Apple has planned obsolescence into their products. The American public is not responding favorably to that any longer.

JPMorgan Chase & Co (NYSE:JPM)

Optimism behind banks is real

Now, I understand his optimism about the banks. He has a very reasonable reason for wanting investors to be invested into financials. The recovering economy, declining loan losses, falling credit losses, growth in the fee business, and cross-selling will contribute to the bottom line performance of the bank’s earnings growth going forward.

However, we have to compare Exxon Mobil Corporation (NYSE:XOM), JPMorgan Chase & Co. (NYSE:JPM), and Apple Inc. (NASDAQ:AAPL) side-by-side to come up with a reasonable angle to approach this topic of which will be biggest.

Source: Ycharts

I have to admit if anything, it is likely to be Apple supplanting Exxon Mobil Corporation (NYSE:XOM) in terms of net income. The reasoning for this is quite simple. Look at how fast Apple is growing when compared to JPMorgan Chase & Co. (NYSE:JPM) and ExxonMobil.

Analysts don’t anticipate any near term catalysts that could at least help the bank grow earnings in double digits going forward. Analysts believe that JPMorgan Chase & Co. (NYSE:JPM) will grow earnings by 6.31% on average over the next five years. Comparatively speaking, Apple is projected to grow earnings by 20.88% on average over the next five years. Exxon Mobil Corporation (NYSE:XOM) is projected to grow earnings by 1.81% on average over the next five years.

So if anything, it would be easier for JPMorgan Chase & Co. (NYSE:JPM) to catch up to the world’s largest oil company than it is for JPMorgan Chase to catch up to the world’s favorite technology company.

Just for fun math

Assuming Exxon grew at 1.81% and JPMorgan grew at 6.31% indefinitely, I have calculated that it would take 44.6 years for JPMorgan to catch up to Exxon’s net income. If JPMorgan was to grow earnings by 20% compounded, it could catch up to Exxon over the next five years, but the probability of that happening is slim. The bank would need a strong economy, paired with financial brilliance on an unprecedented scale to catch up to Exxon in the next five years.

I didn’t even bother doing the mathematical calculation for JPMorgan Chase & Co. (NYSE:JPM) and Apple. After all, Apple has bigger earnings than JPMorgan, plus higher rates of projected growth so it would be impossible for JPMorgan Chase & Co. (NYSE:JPM) to catch up to Apple’s earnings over the next five years barring any unforeseen circumstances.

Apple’s growth is not a joke

The hype behind Apple Inc. (NASDAQ:AAPL) is undeniably real. The company is projected to grow earnings at 20% on average over the next five years because the smartphone market is expected to double through 2012 to 2016 (which essentially means that the smart phone market will grow by 25% on average over the next four years). Gartner also estimated that the number of units shipped in the tablet market will grow from 125 million units in 2012 to 375 million in 2016. So, the tablet market is expected to triple over the course of four years, which means that the tablet market is projected to grow by 75% on average over the next four years.