JP Morgan Beats Profit Estimates; JPM Jumps to 1 Month High
JP Morgan surprised markets today after posting better than expected EPS and revenues in the third quarter of 2020. According to a press release published by the company on Tuesday, the beat was possible in part for a trading revenue boom.
American multinational investment bank and financial services holding company JP Morgan and Chase reported a third quarter profit of 9.44 billion dollars, which would mean a GAAP Earning Per Share of 2.92 dollars, a beat of 0.73 dollars from the 2.23 dollars per share expected by the market.
JP Morgan experienced a revenue of 29.15 billion dollars in the Q3, 3.0 percent less than the same period in 2019, but a beat of 1.5 billion dollars from analysts' expectations. On the quarter to quarter basis, the bank's profits rose 4 percent, a strong note following the previous months of uncertainty due to the COVID-19 pandemic.
As CNBC analyst Hugh Son said in a report published on Tuesday, "The key question for the third quarter: Whether American banks will show that they're largely done setting aside money for loan defaults tied to the pandemic. That appears to be the case at JPMorgan, which had a $611 million provision in credit costs in the period, compared to $10.5 billion in the previous quarter."
JPMorgan took advantage of coronavirus disruption in the economy as the profit made by traders in the bank boomed 30 percent to 6.6 billion dollars in the months between July and September.
On the dark side, JP Morgan's net interest income declined by 9 percent to 13.1 billion dollars due to the Federal Reserve's low interest rate policy.
JPMorgan third quarter report details:
- Reported revenue of $29.1 billion; managed revenue of $29.9 billion2
- Credit costs of $611 million included $569 million of net reserve releases
- Average loans up 1%; average deposits up 30%
- Trading fixed income revenue: 4.6 billion dollars
- Equity trading revenue: 2 billion dollar
- $1.3 trillion liquidity sources, including HQLA and unencumbered marketable securities7
- Average deposits up 28%; client investment assets up 11%
- Average loans6 down 7%; credit card sales volume8 down 8%
- Active mobile customers up 10%
Chief Executive Officer Jamie Dimon said in a statement Tuesday:
The corporate & investment bank continues to be a big driver of firm performance with Markets revenue up 30% and Global IB fees up 9%. CIB and Commercial Banking continue to attract and retain deposits given our strong client franchise as our clients remain liquid, we maintained our credit reserves at $34 billion given significant economic uncertainty and a broad range of potential outcomes.
JP Morgan Stock Analysis
Shares of JP Morgan are trading positive on Tuesday following the big beat in corporate results. The JPM is extending its middle term uptrend started on the 92.00 dollars per share level on September 24 and testing highs since September 4 above 104.00 dollars per unit.
Currently, JPM is being exchanged at 104.10 dollars per share as investors welcomed the better than expected results in the third quarter.
According to TheStreet Quant Ratings, JPMorgan Chase is a stock to "buy" with a target price of 116.89 dollars per unit.
The gross profit margin for JPMORGAN CHASE & CO is rather high; currently it is at 63.87%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, JPM's net profit margin of 13.30% compares favorably to the sub sector average.
CFRA has JPMorgan Chase as a "four stars buy" with a 12-month target price of 115.00 dollars per share as "JPM remains best in class among the large US banks."
Even though Q2 2020 showed the full brunt of Covid-19's impact on banking activity, we forecast JPM is well positioned to rebound when the economy begins to recover. Average deposits rose 20% in Q2 2020, and JPM has the lowest ratio of total net loans to total deposits at 49% compared to direct peers in the 60%-65% level. We believe this gives JPM an edge in terms of managing credit risk to nonperforming loans in 2020.
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