Solid Q4 2022 Earnings for JPMorgan; 2023 Outlook Is Good

JPMorgan Chase Stock at a Glance

Current Morningstar Fair Value Estimate: $146

Stock Star Rating: 3 Stars

Economic Moat Rating: Wide

Moat Trend Rating: Stable

JPMorgan Chase Earnings Update

Wide-moat JPMorgan Chase (JPM) reported solid fourth-quarter 2022 earnings per share of $3.57, beating FactSet consensus of $3.08 and our own estimate of $3.21. The main beat came from net interest income reaching $20.2 billion, roughly $1.2 billion above our own estimate. The bank’s return on tangible equity hit 20% in the quarter, and its efficiency ratio hit 53%, both excellent results. During the reporting of fourth-quarter 2022 results, the next year’s outlook is always a key data point, and here we saw no major surprises. We were expecting NII growth to slightly retreat from the fourth-quarter run rate as deposit costs catch up and market-related NII continues its decline, and the 2023 outlook of roughly $74 billion fits this narrative.

Expenses Likely to Rise

Management had foreshadowed, in previous calls, that expenses would see another step-up in 2023. We were predicting 4%-5% growth, and the 2023 expense outlook of roughly $81 billion implies closer to 6% growth, slightly above our expectations, but still fairly close. Expense development remains a key subplot for JPMorgan as the bank made a large step-up in internal growth investments during 2022 and looks to round out a lot of those initiatives in 2023. Of course, taking share and delivering above-average industry revenue growth rates over the longer term will be the real test.

JPM Stock Near Fair Value

Given that the bank’s overall revenue and expense outlook is generally in line with our previous expectations, we do not expect any material revision to our current $146 per-share fair value estimate, barring any surprises on the upcoming earnings call. We wouldn’t be surprised if the market interpreted these results positively. JPMorgan was one of our top U.S. bank picks for much of 2022 given its attractive valuation and strong franchise, however the bank has materially outperformed its peers and the overall market the past several months, leaving the company’s valuation closer to our fair value estimate.