JPM JPMorgan Chase
Best-in-class bank priced for permanent peak returns; normalized mid-teens ROE doesn't justify 2.6x book.
The story
JPMorgan is the best-run US universal bank, with a fortress balance sheet (CET1 around 15%), leading share in consumer deposits, cards, investment banking and markets, plus a scale advantage in technology spending. Trailing ROE of about 19% (ROTCE in the low 20s) reflects peak conditions: elevated net interest income, benign credit costs and strong markets revenue. As rates ease and card charge-offs normalize, returns should settle in the mid-teens. That is still well above its cost of equity, which supports a premium to book but probably not the 2.6x P/B the market is paying.
I normalized ROE to 16%, below the trailing 19%, to allow for NII compression and card and CRE credit costs returning to through-cycle levels, while still crediting JPM's durable franchise premium over peers. Book grows about 7% near term on retained earnings net of large buybacks, then fades to 4%, below the 5.29% risk-free rate. With beta at the 1.1 industry anchor, cost of equity is about 10.2%. Failure risk is minimal for a G-SIB with this level of capital and liquidity.
Value drivers
| Return on equity (normalized) | 16.0% |
| Book-value growth (Y1) | 7.0% |
| Terminal book growth | 4.0% |
| Beta | 1.10 |
| Failure probability | 0.5% |
| Cost of equity | 10.2% |
Valuation bridge
| PV of excess returns | 105.97B |
| PV of terminal excess | 70.63B |
| Equity value | 516.40B |
| ÷ shares → per share | $194.27 |
News
neutral -0.10 · 8 articles
- Bank Stocks Are Beaten Down. The Case for Buying Now.
- JPM vs. BAC: The Bank Built to Sustain Dividend Growth When Markets Turn
- JPMorgan Stocks Edge Lower as Bank Joins Open Agent-Safety Project
- JPMorgan Trades Below 50-Day SMA: Buy, Sell or Hold the Stock?
- Jefferies' Q3 IB, Equities Offset Weak Asset Management & Fixed Income
- JPMorgan revamps Micron stock price target before earnings
- J.P. Morgan favors European platforms on growth, sees UK backdrop as drag
- Deutsche Bank, J.P. Morgan start Nordnet coverage with split growth views
Projected excess returns on equity
| Yr | Book equity | ROE | Excess return | PV |
|---|---|---|---|---|
| 1 | 342.39B | 16.0% | 19.71B | 17.88B |
| 2 | 366.36B | 15.6% | 19.56B | 16.10B |
| 3 | 390.78B | 15.2% | 19.23B | 14.36B |
| 4 | 415.53B | 14.7% | 18.72B | 12.67B |
| 5 | 440.47B | 14.3% | 18.00B | 11.06B |
| 6 | 465.43B | 13.9% | 17.08B | 9.51B |
| 7 | 490.25B | 13.5% | 15.94B | 8.06B |
| 8 | 514.76B | 13.1% | 14.59B | 6.69B |
| 9 | 538.78B | 12.7% | 13.02B | 5.42B |
| 10 | 562.13B | 12.2% | 11.24B | 4.24B |
Key risks
- Credit cycle turn: consumer card and commercial real estate losses rise from benign levels
- Falling rates compress net interest income from its peak
- Leadership succession after Jamie Dimon, plus regulatory or capital-rule changes (Basel III endgame, G-SIB surcharge)
Catalysts
- Capital-rule relief that frees excess CET1 for larger buybacks and dividends
- A sustained recovery in investment banking and trading fees that lifts fee-income mix