JPMorgan Cheers Investors by Sticking With 17% Return | JPM Message Board Posts


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Msg  329 of 333  at  5/23/2022 4:16:10 PM  by

jerrykrause


JPMorgan Cheers Investors by Sticking With 17% Return

 

JPMorgan Cheers Investors by Sticking With 17% Return

 
 

JPMorgan Chase's forecast that it may hit its goal of a 17% return on tangible equity this year is one of the most bullish developments coming out of its Investor Day meeting Monday, according to Wells Fargo analyst Mike Mayo.

Shares of JPMorgan Chase (ticker: JPM) were up 4.6%, at $122.79, in midmorning trading, helped by the meeting presentation and a broad rally in depressed bank stocks.

JPMorgan is sticking with its 17% goal, but analysts had scaled back their expectations to the 15%-to-16% range in the past few months due to higher-than-expected expenses and reduced stock buyback activity.

In its presentation, JPMorgan said 17% "remains our target and may be achieved in 2022."

Mayo, who has been one of the bank's leading critics on Wall Street this year, weighed in on the bank's forecast in a note: "That's the big surprise of the day."

The analyst has an Equal Weight rating on the stock and a $145 price target.

Investors had been hoping that JPMorgan, which had been down 25% this year coming into Monday and trailing many of its peers, would offer some encouraging guidance.

Before the meeting, Mayo wrote that investors would be looking to see if the bank, which has had some of the highest returns among its peers in the recent past, has "lost its fastball."

JPMorgan scheduled Monday's meeting early this year to address investor concerns after its stock was hit after its fourth-quarter earnings release. The bank then surprised investors with a forecast of higher expenses and didn't provide a lot of details.

Another positive was a boost to the bank's projected 2022 net interest income of $56 billion.

Perhaps more important, JPMorgan said its annual run rate of net interest income could be $66 billion by the fourth quarter, assuming the Federal Reserve boosts short rates to 3% by year's end and the bank achieves high single-digit loan growth. The bank held steady its forecast of $77 billion in noninterest expenses.

The prospect of higher net interest income stemming from Fed rate hikes was central to the bullish argument for banks coming into this year. The sector has been weak, however, due to concerns about a recession.

The current FactSet consensus estimate for JP Morgan's 2022 earnings is $11.02 a share, down from over $15 a share last year when JP Morgan benefited from significant releases from loan-loss reserves.

Mayo wrote that his estimate of $11.58 a share implies a roughly 16% return on tangible equity. A return of 17% likely would mean earnings of over $12 a share. The bank's tangible equity was about $70 a share on March 31. Analyst estimates for earnings could rise as a result of the bank's forecast Monday.

A negative from the meeting, Mayo noted, was JPMorgan's view that higher regulatory capital requirements may be coming in the next two years, which could make it tougher to a 17% return on tangible equity. The regulatory capital minimum based on common equity tier 1 (CET1) may go to 11.2% this year to 11.7% or higher in 2023 and 12.2% or higher in 2024, the bank said.

JP Morgan's capital ratio based on this measure fell to 11.9% in the first quarter due in part to losses on its bond portfolio from higher rates. The lower capital ratio should mean lower stock repurchase activity this year.

 


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