We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Time to Invest in this Big Bank Stock During High Inflation?
Read MoreHide Full Article
Inflation has continued taking a toll on many industries as the global economy experiences a downturn. High-interest rates can have a mixed effect on the financial industry with some banks poised to profit from inflation.
Higher interest rates on loans can become very profitable for banks that have a diverse segment of financial operations. While mortgage loans may continue to decline, banks that can keep loan volume up through personal loans, credit cards, and commercial banking have a chance to thrive in current economic conditions.
With many of the big banks well off their highs, let’s take a look at one investors may want to consider.
One bank poised to benefit from rising interest rates and volatile markets is JP Morgan Chase. As one of the largest financial holding companies in the world, JP Morgan has a diverse range of banking and non-banking financial services that can thrive and benefit from higher interest rates.
JPM currently sports a Zacks Rank #2 (Buy) as earnings estimate revisions are starting to go up again. Earlier in the year, the company stated that income from interest payments would rise this year and revenue from trading would be up from high volatility.
During the second quarter investors attentively listened to CEO Jamie Dimon say that factors such as quantitative tightening, geopolitical tensions, and uncertainly in interest rates would weigh on the global economy.
Despite missing second-quarter earnings expectations by 5% at $0.73 a share, many of JPM’s business segments continued to grow. The company’s combined debt and credit card spending were up 15% with travel and dining spending remaining robust.
Market revenue from trading was up 15%, with commercial banking loans up 7% on strong new loan organizations and higher revolver utilization. Overall, consumer & business banking net revenue climbed 9% to $6.6 billion, driven by growth in deposits.
Also, the second quarter earnings decline was largely due to net income being down from the absence of the credit reserve release recorded in the year prior. This is reason to believe that JPM may be oversold with the stock trading 35% off its 52-week highs.
Performance
Year to date JPM is down -29% to underperform the S&P 500’s -23% decline, which is on par with its peer groups performance. However, over the last five years, JPM’s total return including dividends is +32%, crushing its peers -23% decline.
Image Source: Zacks Investment Research
Even better, over the last 10 years, JPM’s +251% total return has outpaced its peer group and the benchmark’s +230%. This year’s sell-off could be quite the opportunity for longer-term investors to start adding positions in JPM stock.
Outlook & Valuation
Trading around $112 a share, JPM has a forward P/E of 9.5X. This is on par with the industry average. This is also well below its 10-year high of 21.6X and the median of 11.4X.
Image Source: Zacks Investment Research
JPM is trading at a discount relative to its past and has a considerable amount of cash compared to its peers. JPM’s cash flow per share is 19X, significantly higher than its peer groups 7X. Surely having more cash on hand will be more important than ever in the midst of rising inflating.
JPM is also expected to have 5% earnings growth over the next five years. This year’s earnings are expected to be down 26%, but rise 14% in FY23 at $12.99 a share. Top line growth is expected to be up 4% this year and another 9% in FY23 at $138.37 billion.
Bottom Line
JPM’s decline might very well be a long-term opportunity for investors. The average Zacks Price Target offers 33% upside from current levels. JPM’s total return over the last decade has been stellar and the company has raised its dividend four times in the last five years. JP Morgan’s annual dividend yield is currently 3.71% at $4.00 a share. JPM’s dividend is also higher than its big bank peers, Bank of America (BAC - Free Report) , Wells Fargo (WFC - Free Report) , and Citigroup (C - Free Report) .
As banks begin finding ways to profit from rising inflation and rates, it is important to note that JPM’s Banks-Major Regional Industry is in the top 29% of over 250 Zacks Industries. As one of the largest banks in the world, JPM has many diverse business segments that will continue to be profitable for its shareholders as interest rates remain high.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Time to Invest in this Big Bank Stock During High Inflation?
Inflation has continued taking a toll on many industries as the global economy experiences a downturn. High-interest rates can have a mixed effect on the financial industry with some banks poised to profit from inflation.
Higher interest rates on loans can become very profitable for banks that have a diverse segment of financial operations. While mortgage loans may continue to decline, banks that can keep loan volume up through personal loans, credit cards, and commercial banking have a chance to thrive in current economic conditions.
With many of the big banks well off their highs, let’s take a look at one investors may want to consider.
JPMorgan Chase (JPM - Free Report)
One bank poised to benefit from rising interest rates and volatile markets is JP Morgan Chase. As one of the largest financial holding companies in the world, JP Morgan has a diverse range of banking and non-banking financial services that can thrive and benefit from higher interest rates.
JPM currently sports a Zacks Rank #2 (Buy) as earnings estimate revisions are starting to go up again. Earlier in the year, the company stated that income from interest payments would rise this year and revenue from trading would be up from high volatility.
During the second quarter investors attentively listened to CEO Jamie Dimon say that factors such as quantitative tightening, geopolitical tensions, and uncertainly in interest rates would weigh on the global economy.
Despite missing second-quarter earnings expectations by 5% at $0.73 a share, many of JPM’s business segments continued to grow. The company’s combined debt and credit card spending were up 15% with travel and dining spending remaining robust.
Market revenue from trading was up 15%, with commercial banking loans up 7% on strong new loan organizations and higher revolver utilization. Overall, consumer & business banking net revenue climbed 9% to $6.6 billion, driven by growth in deposits.
Also, the second quarter earnings decline was largely due to net income being down from the absence of the credit reserve release recorded in the year prior. This is reason to believe that JPM may be oversold with the stock trading 35% off its 52-week highs.
Performance
Year to date JPM is down -29% to underperform the S&P 500’s -23% decline, which is on par with its peer groups performance. However, over the last five years, JPM’s total return including dividends is +32%, crushing its peers -23% decline.
Image Source: Zacks Investment Research
Even better, over the last 10 years, JPM’s +251% total return has outpaced its peer group and the benchmark’s +230%. This year’s sell-off could be quite the opportunity for longer-term investors to start adding positions in JPM stock.
Outlook & Valuation
Trading around $112 a share, JPM has a forward P/E of 9.5X. This is on par with the industry average. This is also well below its 10-year high of 21.6X and the median of 11.4X.
Image Source: Zacks Investment Research
JPM is trading at a discount relative to its past and has a considerable amount of cash compared to its peers. JPM’s cash flow per share is 19X, significantly higher than its peer groups 7X. Surely having more cash on hand will be more important than ever in the midst of rising inflating.
JPM is also expected to have 5% earnings growth over the next five years. This year’s earnings are expected to be down 26%, but rise 14% in FY23 at $12.99 a share. Top line growth is expected to be up 4% this year and another 9% in FY23 at $138.37 billion.
Bottom Line
JPM’s decline might very well be a long-term opportunity for investors. The average Zacks Price Target offers 33% upside from current levels. JPM’s total return over the last decade has been stellar and the company has raised its dividend four times in the last five years. JP Morgan’s annual dividend yield is currently 3.71% at $4.00 a share. JPM’s dividend is also higher than its big bank peers, Bank of America (BAC - Free Report) , Wells Fargo (WFC - Free Report) , and Citigroup (C - Free Report) .
As banks begin finding ways to profit from rising inflation and rates, it is important to note that JPM’s Banks-Major Regional Industry is in the top 29% of over 250 Zacks Industries. As one of the largest banks in the world, JPM has many diverse business segments that will continue to be profitable for its shareholders as interest rates remain high.