JPMorgan (JPM:NYSE) is a global diversified bank holding company engaged in retail, commercial, and investment banking giant. With a market capitalization just shy of $245 billion, it ranks among the biggest financial institutions on the globe. Its status of “too big to fail” has been modestly contained by increasingly draconian regulatory measures enacted over the previous few years, but that has not hurt the company in its efforts to maximize shareholder value as evidenced by the near 27% one-year return. Relative to peers, JPMorgan has been consistent outperformer trading just shy of record highs of $66.18 reached on May 14th. Despite the momentum of share prices, the company has been plagued by multiple scandals which have led to increased oversight and regulation, hindering growth and forcing the company to keep cash on the side for any unforeseeable losses. Based on the confluence of fundamental and technical factors, share prices look poised for a pullback to momentum and keen to trade sideways until circumstances change.
The Fundamental Look
JPMorgan has been one of the strongest performing American bank holding companies of 2015. In spite of challenges early in the 2015 trading environment, share prices have continued to outpace gains in peers, outperforming even the biggest American bank, Wells Fargo. Although the bank has been beaten black and blue by regulators in recent years for the multitude of scandals that have been surfacing, the leadership, under the stewardship of Jamie Dimon, continue to grow both the top and bottom lines. The interesting part is that all the businesses underlying the bank are contributing to growth, not just one area which is commendable. JPMorgan has derived substantial revenue growth and earnings from divisions across the bank whether related to capital markets or banking operations.
Adding to JPMorgan’s momentum are strong earnings results that come at a time when the company is seeking to exploit efficiencies and cut costs to support higher growth and improved margins. Earnings reported on April 14th saw the company report revenues of $23.107 billion versus $22.365 billion a year earlier while earning $1.45 per share, beating the consensus estimate of $1.39. Legal costs did dent earnings however, coming in at nearly $500 million and will likely remain a drag even if certain costs are abating. Nevertheless, earnings are bolstered by the shareholder value offered, with JPMorgan’s dividend growing fairly steadily. The gross dividend yield of 2.43% is great for investors looking for a place to park cash instead of leaving it on the sidelines in a savings account making minimal interest. On the whole, the banks fundamentals look very strong and the company is considered fairly value despite a P/E ratio that is slightly below peers at 10.69. While this might mean some further upside in shares, the recent rally in share prices might be at its end.
