Raising Our Fair Value Estimate for JPMorgan

Wide-moat JPMorgan Chase (JPM) reported solid third-quarter results that were well ahead of consensus, with net income of $9.1 billion, or $2.68 per diluted share. The quarter’s return on tangible common equity was 18%, coming down a bit after several one-time items from the last quarter boosted previous results, although 18% is still above the bank’s through-the-cycle goal of 17%. Revenue was up 8% year over year, while expenses were only up 5%, leading to solid operating leverage. The bank continued its share repurchases, with average diluted shares down 52.5 million shares (down 2% compared with the second quarter), and year-over-year EPS growth was 15%. Management gave more details around its expectations for net interest income as the forward curve has changed over the quarter; it now expects managed net interest income of less than $57.5 billion. Given the fact that multiple rate cuts have already occurred, with the possibility for more, this was not surprising. Management also nailed down its expense guidance a bit more, coming in at roughly $65.5 billion, whereas before the guidance was simply for less than $66 billion. After incorporating these and other changes, we are increasing our fair value estimate to $114 per share from $110.