JPMorgan Chase & Co. (NYSE: JPM) We were encouraged by a sharply lower loss provision in 3Q, both sequentially and year-over-year, which is indicative that management believes strong reserve builds over the past two quarters now adequately address expected credit losses from high pandemic-related unemployment. Expenses in 2020 are seen at $66 billion.
While forecasts provided at the company’s February Investor Day have been upended by business conditions altered by the coronavirus, we believe several themes discussed remain important, including the earnings consistency the company continues to achieve from its diversified business model, together with strong capital levels that offer protection against an economic downturn. Management maintained medium-term goals, which call for a ROTCE of 17%, an overhead ratio of less than 55%, and a CET1 ratio of 11.5%-12% (compared to 12.4% in 2019).
Our target price remains $125.
On October 13, JPM reported 3Q20 EPS of $2.92, up from $2.68. Revenues were down 1% to $29.1 billion..
Net revenues were also down 9%. Operating expenses declined 4%, reflecting lower marketing spend.
Operating expenses rose 5% on higher legal expense. Net income was up 52% to $4.3 billion.
Commercial Banking revenue was flat at $2.3 billion, with lower deposit margin offset by higher deposit balances and fees, higher lending revenue, and higher investment banking revenue. Following a reserve release of $147 million, versus credit costs of $67 million, net income was up 15% to $1.1 billion.
EARNINGS & GROWTH ANALYSIS
We look for revenues to be about 2% higher in 2020.
Expenses are seen as $66 billion.
Our 2021 forecast moves to $10.40 from $9.90.
We now look for a 29% drop off in earnings in 2020 as flattish revenues are coupled with sharply higher credit costs.
The stock trades at an elevated 13.5-times our 2020 EPS estimate given an earnings hit related to the coronavirus. Our $125 target price assumes a 12-times multiple on a more normalized 2021 EPS forecast.