Financial Experts Prefer J.P. Morgan as Their Top Choice

America’s biggest bank wowed investors with blowout earnings last week, garnering it the top spot amongst the banking stock searches by financial pros.

And it’s not hard to see why.

JP Morgan (JPM) delivered incredible operating income, buoyed by its First Republic acquisition.

And even at these lofty prices, there’s a reason it’s a core holding for most investors.

JP Morgan’s Business

JP Morgan manages $3.7 trillion worth of assets, with operations spanning the globe.

JPM’s business breaks into th

• Consumer & Community Banking (CCB) (40.6% of revenues, 36.7% of net income): Includes banking, credit card, auto finance, mortgage banking, and other consumer and business banking services targeted toward U.S. customers. 
• Corporate & Investment Bank (CIB) (29.5% of revenues, 28.3% of net income): Offers investment banking, markets, securities services, and wholesale payments products and services to corporations, governments, financial institutions, and investors globally.
• Commercial Banking (CB) (9.4% of revenues, 8.3% of net income): Provides lending, treasury services, investment banking, and asset management products and services to corporations, municipalities, financial institutions, and nonprofit entities in the U.S. 
• Asset & Wealth Management (AWM) (11.7% of revenues, 8.3% of net income): Delivers investment and wealth management services to institutional, high-net-worth, and retail clients across various asset classes and markets.
• Corporate (8.8% of revenues, 18.2% of net income): Responsible for managing, monitoring, and reporting the firm’s liquidity, capital, funding, and foreign exchange rate risks

Consumer banking has been the largest growth driver, with net income up 75% YoY for the six month period, largely driven by the acquisition of First Republic’s assets.

Source: JPMorgan Q2 Investor Presentation

Financials

Source: Stock Analysis

Bank revenues often fluctuate based on market conditions. However, for a bank the size of JP Morgan, it gives us a sense of their general size.

And even as one of the largest banks, they’ve grown revenues in the mid to high single digits most years.

The truly impressive performance lands on the operating income line, hitting $90.6 billion over the last 12 months, not an easy feat given rising interest rates and a slowing economy. But buying a large regional bank for pennies on the dollar always helps.

Management said they expect a flat yield curve for the rest of 2023, a notable change from their rising rate expectations last year.

Valuation

Source: Stock Analysis

On a price-to-earnings ratio basis, JPM trades right in the middle of its peers with Goldman Sachs (GS) higher and Citigroup (C) substantially lower.

Unlike most other industries, the price-to-book ratio is a great measure for banks. It tells us the premium placed on the bank’s overall loan portfolio.

Currently, JP Morgan is priced at a 50% premium relative to most other banks. Citigroup’s P/B ratio is exceptionally low as it has more international exposure than its peers.

Growth

Source: Seeking Alpha

JPM is top of the class regarding growth, regardless of the metric.

The only growth measure somewhat behind is the forward diluted EPS outlook. But that is extremely volatile and subject to change.

Profitability

Source: Seeking Alpha

We also can’t help but point out that JPM beats out its peers on every profitability metric, usually by a wide margin. 

The only one it lags on is the return on assets, which can fluctuate from quarter to quarter.

Our Opinion 10/10

There are two people you don’t bet against – the Fed Chair and Jamie Dimon.

JP Morgan weathered the Great Recession and came out stronger for it.

It runs the tightest shop on Wall Street with exceptional growth and performance that’s the envy of any financial institution.

This is a company that everyone wants in their portfolio for the long-haul.