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Is JPM Stock Still a Buy After Offering a Weak 2025 NII Outlook?
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Shares of JPMorgan (JPM - Free Report) slumped 5.2% yesterday following statements by the company's president and chief operating officer, Daniel Pinto, during the Barclays Global Financial Services Conference.
Pinto provided third-quarter 2024 outlook for major business lines and warned about a potential decrease in 2025 net interest income (NII) – the difference between what banks earn on their assets and what they pay on debts – due to interest rate cuts.
JPMorgan’s 2025 NII to be Lower Than Previously Expected
Pinto noted that $90 billion NII as the consensus mark for 2025 “is not very reasonable.” He added, “So I think that, that number will be lower. We are not going to guide on that now, but the $90 billion is a bit too high.”
The Federal Reserve is expected to kick-start the monetary policy easing at its Sept. 17-18 meeting, which is expected to hurt JPM’s NII. At present, the interest rates are at a 23-year high of 5.25-5.5%. Pinto noted that rates are anticipated to decline 250 basis points by 2025-end. While lower rates would lessen deposit repricing pressure, it also means lower interest income.
For 2024, Pinto reiterated NII of approximately $91 billion, up from $89.3 billion in 2023. At the same conference, Bank of America (BAC - Free Report) CEO Brian Moynihan stated that the bank’s NII troughed in the second quarter and is expected to rise going forward.
Pinto also noted that non-interest expenses could rise more than expected in 2025. The primary reason for this would be inflation and investments. He affirmed adjusted non-interest expense to be almost $92 billion for 2024.
Also, the card NCO rate guidance was unchanged. The metric is likely to be approximately 3.4% in 2024 and 3.6% next year.
JPM’s Q3 Guidance for IB Fees & Markets Revenues
The third quarter of 2024 is expected to be a “solid” one for JPMorgan’s investment banking (IB) business. The IB fees are projected to jump 15% year over year. This will be driven by robust performance in debt and equity capital markets.
Pinto said, “We are expecting in debt capital markets volumes in institutional loans and leveraged loans almost double, it will double from last year.” Further, merger & acquisition (M&A) volumes are expected to be “flattish.”
Likewise, at the same conference, Citigroup's (C - Free Report) chief finance officer, Mark Mason, stated that the company’s IB fees are anticipated to jump 20% in the third quarter of 2024 from the year-ago period. The upbeat performance is likely to be driven by solid activity across debt capital markets and M&As. On the other hand, BAC projects IB fees to be “basically flattish” year over year.
On trading business, Pinto said “very, very strong performance in equities across the franchise” to majorly support markets revenues. However, fixed income performance was “a bit weaker.” Overall, markets revenues are projected to be flat or rise almost 2% in the third quarter.
Similarly, Bank of America anticipates trading revenues to be “up low single digits” from last year's quarter. Meanwhile, the view of the top executive from Citigroup differed from that of BAC and JPMorgan. C projects markets revenues to decline nearly 4% compared with last year’s relatively strong third quarter.
Is JPM Stock Worth Betting on Now?
Shares of JPM touched an all-time high on Aug. 23 following a strong signal from the central bank that monetary policy adjustment will happen soon. Nonetheless, since then, the stock is down 6.2%.
In the past month, JPM stock has underperformed the industry, the S&P 500 Index and its close peers – Bank of America and Citigroup.
One-Month Price Performance
Image Source: Zacks Investment Research
Despite the recent slump in JPM shares, it is currently trading at a premium with forward 12-month earnings multiple of 12.19X compared with the industry’s 11.46X, indicating a slightly stretched valuation.
Price-to-Earnings F12M
Image Source: Zacks Investment Research
JPMorgan’s leadership position in several businesses and strategic plan to expand its footprint globally gives it an edge over its peers. In February, the company announced plans to expand its footprint by opening 500 branches by 2027. This will solidify its position as the bank with the largest branch network with a presence in all 48 states in the United States. In addition to enhancing market share, the strategy continues to help JPM grab cross-selling opportunities.
JPMorgan has been growing through on-bolt acquisitions, both domestic and international. Last year, the company increased its stake in Brazil's C6 Bank to 46% from 40%, formed an alliance with Cleareye.ai (a financial technology firm focused on trade finance) and acquired Aumni and First Republic Bank (an FDIC-assisted deal). These and several others done in the past are expected to support the bank's plan to diversify revenues. The company launched its digital retail bank Chase in the U.K. in 2021 and plans to expand the reach of its digital bank across the European Union countries soon.
Its focus on building a solid deposit franchise and bolstering its loan book positions it well for future growth. As of June 30, 2024, the loans-to-deposit ratio was 55%.
JPMorgan also rewards its shareholders handsomely. The company intends to increase its quarterly dividend for the second time this year to $1.25 per share as it cleared the 2024 stress test. It also authorized a new share repurchase program. In the last five years, it increased dividends four times, with an annualized growth rate of 5.2%. Currently, the company's payout ratio stands at 27% of earnings.
Therefore, considering the company’s strong fundamentals and upbeat third-quarter outlook, investors should think about investing in JPMorgan for solid long-term gains despite its high valuation and cautious NII guidance for next year.
Image: Bigstock
Is JPM Stock Still a Buy After Offering a Weak 2025 NII Outlook?
Shares of JPMorgan (JPM - Free Report) slumped 5.2% yesterday following statements by the company's president and chief operating officer, Daniel Pinto, during the Barclays Global Financial Services Conference.
Pinto provided third-quarter 2024 outlook for major business lines and warned about a potential decrease in 2025 net interest income (NII) – the difference between what banks earn on their assets and what they pay on debts – due to interest rate cuts.
JPMorgan’s 2025 NII to be Lower Than Previously Expected
Pinto noted that $90 billion NII as the consensus mark for 2025 “is not very reasonable.” He added, “So I think that, that number will be lower. We are not going to guide on that now, but the $90 billion is a bit too high.”
The Federal Reserve is expected to kick-start the monetary policy easing at its Sept. 17-18 meeting, which is expected to hurt JPM’s NII. At present, the interest rates are at a 23-year high of 5.25-5.5%. Pinto noted that rates are anticipated to decline 250 basis points by 2025-end. While lower rates would lessen deposit repricing pressure, it also means lower interest income.
For 2024, Pinto reiterated NII of approximately $91 billion, up from $89.3 billion in 2023. At the same conference, Bank of America (BAC - Free Report) CEO Brian Moynihan stated that the bank’s NII troughed in the second quarter and is expected to rise going forward.
Pinto also noted that non-interest expenses could rise more than expected in 2025. The primary reason for this would be inflation and investments. He affirmed adjusted non-interest expense to be almost $92 billion for 2024.
Also, the card NCO rate guidance was unchanged. The metric is likely to be approximately 3.4% in 2024 and 3.6% next year.
JPM’s Q3 Guidance for IB Fees & Markets Revenues
The third quarter of 2024 is expected to be a “solid” one for JPMorgan’s investment banking (IB) business. The IB fees are projected to jump 15% year over year. This will be driven by robust performance in debt and equity capital markets.
Pinto said, “We are expecting in debt capital markets volumes in institutional loans and leveraged loans almost double, it will double from last year.” Further, merger & acquisition (M&A) volumes are expected to be “flattish.”
Likewise, at the same conference, Citigroup's (C - Free Report) chief finance officer, Mark Mason, stated that the company’s IB fees are anticipated to jump 20% in the third quarter of 2024 from the year-ago period. The upbeat performance is likely to be driven by solid activity across debt capital markets and M&As. On the other hand, BAC projects IB fees to be “basically flattish” year over year.
On trading business, Pinto said “very, very strong performance in equities across the franchise” to majorly support markets revenues. However, fixed income performance was “a bit weaker.” Overall, markets revenues are projected to be flat or rise almost 2% in the third quarter.
Similarly, Bank of America anticipates trading revenues to be “up low single digits” from last year's quarter. Meanwhile, the view of the top executive from Citigroup differed from that of BAC and JPMorgan. C projects markets revenues to decline nearly 4% compared with last year’s relatively strong third quarter.
Is JPM Stock Worth Betting on Now?
Shares of JPM touched an all-time high on Aug. 23 following a strong signal from the central bank that monetary policy adjustment will happen soon. Nonetheless, since then, the stock is down 6.2%.
In the past month, JPM stock has underperformed the industry, the S&P 500 Index and its close peers – Bank of America and Citigroup.
One-Month Price Performance
Image Source: Zacks Investment Research
Despite the recent slump in JPM shares, it is currently trading at a premium with forward 12-month earnings multiple of 12.19X compared with the industry’s 11.46X, indicating a slightly stretched valuation.
Price-to-Earnings F12M
Image Source: Zacks Investment Research
JPMorgan’s leadership position in several businesses and strategic plan to expand its footprint globally gives it an edge over its peers. In February, the company announced plans to expand its footprint by opening 500 branches by 2027. This will solidify its position as the bank with the largest branch network with a presence in all 48 states in the United States. In addition to enhancing market share, the strategy continues to help JPM grab cross-selling opportunities.
JPMorgan has been growing through on-bolt acquisitions, both domestic and international. Last year, the company increased its stake in Brazil's C6 Bank to 46% from 40%, formed an alliance with Cleareye.ai (a financial technology firm focused on trade finance) and acquired Aumni and First Republic Bank (an FDIC-assisted deal). These and several others done in the past are expected to support the bank's plan to diversify revenues. The company launched its digital retail bank Chase in the U.K. in 2021 and plans to expand the reach of its digital bank across the European Union countries soon.
Its focus on building a solid deposit franchise and bolstering its loan book positions it well for future growth. As of June 30, 2024, the loans-to-deposit ratio was 55%.
JPMorgan also rewards its shareholders handsomely. The company intends to increase its quarterly dividend for the second time this year to $1.25 per share as it cleared the 2024 stress test. It also authorized a new share repurchase program. In the last five years, it increased dividends four times, with an annualized growth rate of 5.2%. Currently, the company's payout ratio stands at 27% of earnings.
Therefore, considering the company’s strong fundamentals and upbeat third-quarter outlook, investors should think about investing in JPMorgan for solid long-term gains despite its high valuation and cautious NII guidance for next year.
JPM currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.