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Stock Analyst Update

Raising Our Fair Value for Wide-Moat JPMorgan Chase

The firm reported stellar fourth-quarter results that were well-above consensus.


Wide-moat JPMorgan Chase (JPM) reported stellar fourth-quarter results that were well-above consensus, with net income coming in at $8.5 billion, or $2.57 per diluted share, largely driven by fixed-income markets related revenue. Return on tangible common equity was 17%, which was in line with the bank's through-the-cycle target. Revenue increased 9% while expenses came in at 4%, leading to excellent operating leverage for the quarter and positive operating leverage for the year. JPMorgan Chase stayed on course with its share repurchase program, average diluted shares fell 58.7 million (approximately 2%) compared with the previous quarter, and year-over-year EPS grew an impressive 30%. The bank reported $14.3 billion in managed net interest income, leading to a total of $57.8 billion for the year, above last quarter's management outlook of below $57.5 billion. Meanwhile, expenses came in at $65.5 billion, which was in line with guidance. On the back of these results, we plan to raise our fair value estimate by a low- to mid-single-digit amount as we incorporate the latest results into our projections.

The managed overhead ratio was roughly steady at 56% as the bank continues to reiterate its commitment to technological development and expansion, reflected by an increase in technology, communications and equipment expenses. Average core loans remained roughly flat; however, with the exclusion of some sales in home lending, loan growth came in at 3%. This was supported by a year-over-year increase in average deposits of 7% caused by client acquisition and strong organic growth. Credit costs remained roughly stable, even as we continue to see some normalization within certain loan portfolios. JPMorgan reported an advanced common equity Tier 1 ratio of 13.4%, up roughly 30 basis points from the previous quarter.

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Eric Compton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.