J.P. Morgan Beats on the Top and Bottom Lines

J.P. Morgan Chase and Co. (Ticker Symbol: JPM) reported earnings early Tuesday morning that beat on the top and bottom lines.  The multinational investment bank and financial services company reported an earnings per share beat of $2.82 per share vs. Wall Street analysts’ expectations of $2.50 per share.  Earnings were exceptionally strong this quarter due to a one-time tax boost that came from certain tax audits that raised the bank’s per-share profits by .23 cents. J.P. Morgan reported a revenue beat of $29.57 billion vs. Wall Street analysts’ expectations of $28.9 billion.  Additionally, J.P. Morgan’s FICC trading division reported $6.39 billion in revenue vs. the $3.36 billion Wall Street was expecting. However, the equities trading arm reported $1.73 billion in revenue vs. $1.84 billion that analysts were expecting.  

The Federal Reserve reported its annual stress tests to measure the financial health of the top financial institutions in the country at the end of June.  The Federal Reserve released that the top U.S. banks passed the stress tests and that they would be allowed to pay capital out to their shareholders. After the results of the test, J.P. Morgan increased its dividend by .10 cents to .90 cents a share.  The bank also announced an increase to its stock buyback program by $9 billion, raising its total amount of stock repurchases to $29.4 billion.  

Above is the weekly chart of J.P. Morgan’s stock price.  The stock spent 2011-2012 forming a Double Bottom reversal pattern around the $30.00 price level.  This occurs when the price of an asset reaches a low price, has a small rally, then retests that low failing to break below it.  The pattern is confirmed once it breaks above the high between the two prior lows. J.P. Morgan broke out of its Double Bottom in the first quarter of 2013 and rallied over 40% over the next two and a half years.  

In the second quarter of 2015, the stock began to form a symmetrical triangle. Symmetrical triangles can be viewed as areas of indecision. A series of lower highs and higher lows are made until the pattern comes to a point and then breaks out in one direction, usually, in the direction of the trend.  J.P. Morgan’s stock broke out higher and rallied 45%. The stock then put in a bull flag continuation pattern. Bull flags represent consolidation in the market and are usually seen after large and quick moves.  Bull flags are formed when a stock creates lower tops and lower bottoms, with the pattern slanting against the trend.  J.P. Morgan’s stock broke out of that pattern and rallied to an all-time high on February 27, 2018, at the price of $119.33.

Currently, the stock is sitting just under 4% away from its all-time high.  

(Chart above courtesy of ​www.tipranks.com​)  

Based on a survey of 2 analysts offering 12-month price targets, the average price target for J.P. Morgan’s stock is $118.50. According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $115.01. 

J.P. Morgan could be the shining light within the banking sector after its quarterly earnings release this week.  The major banks are increasing dividends and share buybacks which continue to reward shareholders. Investors in the financial space should look to Bank of America’s earnings release on Wednesday and Morgan Stanley’s earnings release on Thursday for fresh news with the financial sector.