JPMorgan Chase & Co. (NYSE: JPM) held its investor day recently, and it is difficult to find anything bad to say, nor could I find anything awful hidden that the investor day bleeped over — although charge-offs were one blotchy area. Overall, JPMorgan Chase stock looks like it could generate pretax income of anywhere between $44 billion and $47 billion this year. That would be an increase of anywhere between 10% and 20% over 2017.
Breaking this number down into individual categories shows that estimates across every metric are going to substantially beat current estimates. Earnings-per-share, for example, would therefore hit $8.82 per share.
Revenue is estimated to hit $108.64 billion up $5 billion over 2017. Operating profit would jump more than 20% from $35.9 billion to $43.7 billion.
For any bank, net interest income (NII) is the bread and butter of its operations. In short, it’s how much interest is being earned on all the loans the bank made. Back in 2015, JPMorgan Chase stock generated $44.6 billion in net interest income. Last year, it generated $51.4 billion in net interest income. That number is expected to top out anywhere between $54 billion and $55 billion.
Tailwinds for JPMorgan Chase Stock
Yet, the 7% increase in interest income apparently will be augmented by a 7% increase in noninterest income as well. The implication is that all divisions of the investment bank will be feeling tailwinds.
I mentioned charge-offs earlier. There is an expected 30 basis point to 55 basis points increase in credit card charge-offs. That could bring the charge-off rate to anywhere between 3.25% and 3.5%. Every bank is going to have credit card charge-offs, but I would keep a very careful eye on the charge-off rate both at JPMorgan Chase stock, as well as in the New York Federal Reserve’s quarterly report.
Americans have been levering up, drawing down more and more debt after bottoming out after the financial crisis. While the economy has been organically growing, thanks to President Trump’s economic agenda, a good deal of growth that is been driven by spending, has come on the backs of credit.
Over on the trading side, which can often make or break an investment bank’s entire quarter or year, I would expect JPMorgan Chase to do quite well this year. Volatility is a great thing when it comes to trading revenues, for obvious reasons. We saw tremendous volatility in February, following a year in which volatility hit all-time lows.
Bottom Line on JPMorgan Chase Stock
In almost all cases, you want to invest in the leader in any particular sector. JPMorgan Chase stock has done so well primarily because it is the leader in many different areas. JPM stock leads the industry in terms of deposit growth with an average of 9% over the past three years. It is also the leader in the following areas: domestic credit card issuer, co-branded credit card issuer, credit and debit payments volume, investment banking fees, global long-term debt and loan syndications, FICC productivity and domestic payment volumes with a 20% share in 2017. And, it is the leading private bank in North America and Latin America.
JPM stock benefits from having the number one position in multifamily lending the past two years, with 235 mutual funds that have a four-star or five-star rating. It has relationships with over half the households in the United States.
JPMorgan Chase seems like a slam-dunk investment in the financial services sector.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at [email protected].