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JP Morgan
Chase is scheduled to report fourth quarter 2008 results before
the market opens on Thursday, January 15. Based on our analysis,
we are expecting JPM to report disappointing results that fail
to meet Wall Street’s expectations.
Analyst
Expectations
We are
forecasting revenues of $19.0 billion and EPS of ($.05). This
would represent a 9% increase in revenues from last year’s
$17.38 billion in the same period. The current analyst consensus
calls for revenues of $19.16 billion and $.02 EPS.
We expect
fourth quarter performance will be particularly tough.
Increasing economic pressures caused spreads to widen as the
credit markets almost completely froze up. In addition, lack of
activity in the investment banking sector and additional write
downs on the loan portfolios could highlight the financials
troubles of 2008.
Fortunately, JP Morgan remains one of the solid foundation
stones of our financial industry. With a visionary management
team and a strong balance sheet, they appear to have taken the
lemons of 2008 and made lemonade. The acquisitions of Bear
Stearns and Washington Mutual at fire sale prices should provide
significant lift over the long term and could allow JP Morgan to
position themselves well ahead of their competitors.
Share
Performance
JP
Morgan's shares have already fallen 20% this year. In 2008,
their shares dropped 28% while slightly outperforming the 34%
drop in the Dow Jones index.
Valuation
Shares are
now trading at 11x consensus 2009 EPS estimates. While this
represents a premium to their peer group, we believe JPM’s
leadership positions justifies this valuation.
Recommendation:
Buy with a $30 price target.
At the time this article was published, the author did not have
a financial position in any of the stocks mentioned in this
article.
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