Bloomsburg Investment Group
Equity Analysis: J.P. Morgan Chase (JPM) Analyst: Caleb Putnam, Class of 2022 Kevin Benkovic, Class of 2020 Jon Bibby, Class of 2023 Jacob Bodenschatz, Class 2023 Aaron Best, Class of 2023
Bloomsburg Investment Group Opinion: We as the Financial Sector believe the JPMorgan Chase should be Partially liquidated from the portfolio for the following reasons. With slowing global economy and slowing U.S. economy with recession looming, the group believes it is time to capitalize on the earnings that JPM has accumulated in our portfolio before the markets have a volatile down turn. If JPMorgan has a volatile downturn, the weight and risk it carries in our portfolio can pull value of the portfolio down. Despite all the economic uncertainty, JPM has performed much better than its competitors and maintains good levels of profitability despite industry headwinds. The leadership of JPM gives the group confidence in the long-term future of the Bank as a whole. JPMorgan still remains the best bank for our portfolio
Corporate Summary: Corporate Details: Name JPMorgan Chase & Co JPMorgan Chase & Co. operates as a financial services company worldwide. It operates through Consumer & Community Banking, Corporate & Investment Bank, Commercial Ticker JPM Banking, and Asset & Wealth Management segments. The Consumer & Community Domicile United States Banking segment offers deposit and investment products and services to consumers; lending, deposit, and cash management and payment solutions to small businesses; Sector Financial Services residential mortgages and home equity loans; and credit cards, payment services, payment processing services, auto loans and leases, and student loans. The Corporate & Investment Industry IG000DA340 Bank segment provides investment banking products and services, including advising on Exchange NEW YORK STOCK EXCHANGE, INC. corporate strategy and structure, and capital-raising in equity and debt markets, as well as loan origination and syndication; treasury services, such as cash management and liquidity Last Close 127.80 solutions; and cash securities and derivative instruments, risk management solutions, prime brokerage, and research services. It also offers securities services, including custody, Price 52 Wk High 127.99 fund accounting and administration, and securities lending products for asset managers, Price 52 Wk Low 91.11 insurance companies, and public and private investment funds. The Commercial Banking segment offers financial solutions, including lending, treasury, investment banking, and Latest Dividend 0.90 asset management to corporations, municipalities, financial institutions, and nonprofit entities, as well as financing to real estate investors and owners. The Asset & Wealth Dividend Yield % TTM 2.58 Management segment provides investment and wealth management services across Beta 5 Yr (MoEnd) 1.21 various asset classes, such as equities, fixed income, alternatives, and money market funds; multi asset investment management services; retirement services; and brokerage and Avg Daily Volume (3 Mo) 11,520,754.95 banking services comprising trusts, estates, loans, mortgages, and deposits. JPMorgan Chase & Co. was founded in 1799 and is headquartered in New York, New York Shares Outstanding (mil) 3,136.50 Number of Analysts 7 11/3/2019 JPMorgan Chase & Co US Dollar Page 1 of 10
Source: Morningstar Direct JPMorgan Chase & Co JPM
Corporate Governance: Board of Directors Linda B. Bammann (age: 63)
James A. Bell (age: 71)
Stephen B. Burke (age: 61)
Todd A. Combs (age: 48)
James S. Crown (age: 66)
James Dimon (age: 63)
Timothy P. Flynn (age: 63)
Mellody Hobson (age: 50)
Laban P. Jackson, Jr. (age: 76)
Michael A. Neal (age: 66)
Lee R. Raymond (age: 81)
William C. Weldon (age: 70)
Corporate Governance: Top Management James Dimon: Chairman and Chief Executive Officer- 63 years old
Ashley Bacon: Chief Risk Officer- 49 years old
Lori A. Beer: Chief Information Officer- 51 years old
Mary Callahan Erdoes: Asset & Wealth Management CEO- 52 years old
Stacey Friedman: General Counsel- 50 years old
Marianne Lake: Consumer Lending CEO- 49 years old
Robin Leopold: Head of Human Resources- 54 years old
Douglas B. Petno: Commercial Banking CEO- 53 years old
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Source: Morningstar Direct JPMorgan Chase & Co JPM
Corporate Governance: Top Shareholders & Insider Transactions
Top Institutional Shareholders Vanguard Group Inc 252,550,479 7.9% Black Rock Inc 216,451,270 6.7% State Street Corp 149,533,773 4.68% Capital Group Companies Inc 128,274,515 4.01% FMR LLC 61,707,459 1.93%
Insider Transactions Gordon Smith -83,289 10/16/2019 Eduardo Pinto -53,000 10/17/2019 Mellody Hobson 16,000 10/23/2019 Lori Beer -13,341 7/17/2019 Mellody Hobson 18,200 08/08/2019
Top Individual Shareholders 1 Jamie Dimon 7,867,414 2. James Crown 576,125 3) Pinto Daniel Eduardo 530,891 4) Gordon Smith 450,248 5) Mary Callahan Erdoes 448,459
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Source: Morningstar Direct JPMorgan Chase & Co JPM
Financial Summary, Year End 2016 (in millions) Financial Highlights Market Capitaliza�on 400,844.70 Quarter 3 Financial Highlights Total Revenue 109,029.00 30.1 Billion in Revenue and 9.1 Billion on Net income Gross Profit with an EPS of $2.68 Opera�ng Income 35,900.00 Balance Sheet: Net Income Cont Ops 32,474.00 Average loan growth flat YOY Net Income 32,474.00 Average deposits up 5% YOY Tier 1 capital ra�o 14.1% Current Assets Consumer and Community Banking Cash Average Loans down 4% YOY Total Assets 2,622,532.00 Average deposits up 3% YOY Current Liabili�es Ac�ve mobile customers up 12% YOY Longterm Liabili�es Credit card sales up 12% YOY Total Liabili�es Merchant Processing Volume 12% YOY Total Equity 256,515.00 Corporate and Investment Banking Opera�ng Cash Flow 14,187.00 Investment Banking up 8% YOY due to higher fees Inves�ng Cash Flow 197,993.00 Fixed Income Market up 25% YOY Financing Cash Flow 34,158.00 Equity market Revenue down 5% YOY Change In Cash 149,648.00 Commercial Banking Net interest income down 5% YOY while total revenue EBITDA 34,551.00 was down 3% YOY Enterprise Value Asset And Wealth Management Capital Expenditure Revenue flat YOY P/E Ra�o Forward 11.99 Net income down 8% YOY PEG Ra�o 1.82 Dividend Yield % TTM 2.58
Investment Growth
Time Period: 11/1/2016 to 10/31/2019
100.0% 90.0%
80.0% 70.0%
60.0% 50.0%
40.0% 30.0% 20.0%
10.0% 0.0%
-10.0% 1/2017 4/2017 7/2017 10/2017 1/2018 4/2018 7/2018 10/2018 1/2019 4/2019 7/2019 10/2019
JPMorgan Chase & Co 94.5% S&P 500 TR USD 51.7% 11/3/2019 JPMorgan Chase & Co US Dollar Page 4 of 10
Source: Morningstar Direct JPMorgan Chase & Co JPM
JPM Removes Mobile Banking App "Finn" Insiders Quietly Buying JPMorgan Chase & Co. JPM is already the leading bank for millennials so The executives within JPM are putting their money where their mouth is. Filings with the SEC revealed that the director, Mellody they realized that they did not need an extra service Hobson, has bought 18,200 shares valued at $2.0 million. Also, over to lure them in. Even though this product was the past year, other company insiders have purchased more than pushed towards the digitally inclined, it still caused 3.4 million shares combined. As well, JPMorgan announced plans to a lot of confusion for the clients. JPM elected to return $40.0 billion to shareholders over the next year, making this the largest investor payout by any U.S. bank over any one-year move services offered from “Finn” back to the period. And despite the overall pessimism, JPMorgan has been able primary Chase Mobile Banking App. to show a profit of $9.7 billion, a 16.1% year-over-year increase, in the second quarter.
JPMorgan invests $25 million in fintech start-ups JPM acquisition of Instamed These start-ups are to aid low-income Americans become JPM spent over $500 million to buy the medical payments more financially healthy. The bank redesigned brick and technology firm InstaMed. This is the largest investment mortar locations to have several meeting rooms that can be since buying Bear Stearns in 2008. This is their way of reserved for free by people and businesses in the keeping up with the fast changing world of payments. This community for financial assistance. This addition is to match decision was made because of the size of the healthcare the idea that new customers value the quality of market. The US health spending for 2017 was at 3.5 trillion environment and service. The industry has already seen but that is expected to go up to $6 trillion by 2027. other financial sector companies instill the same ideas, such Instamed is now a subsidiary of JPM Chase as capital one cafes.
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Source: Morningstar Direct JPMorgan Chase & Co JPM
Industry Environment: The Lending institutions are very important in determining the overall health of the economy. Lending institutions in this sector provide loans to consumers and businesses that are vital to stimulating the economy. In this sector JPMorgan Operates as one of the leading lending institutions in the United States. Recently, the industry has seen many headwinds with slowing global economic growth and trade uncertainty. The interest rate environment has cut into interest margins for these lending institutions. Continuing worries over the yield curve and trade can cause a deep decrease in the demand for loans. The financial sector has outperformed the S&P 500 2% YTD.
Competitor Comparison Market Total Total Gross Beta 5 Net Cap ROA % ROE % Assets Deposits Loan Yr Margin % (mil) (TTM) (TTM) (mil) (mil) (mil) (Mo-End) TTM (Daily) FY 1 FY 1 FY 1 JPMorgan Chase & Co 400,844.70 1.21 29.23 1.22 13.92 2,622,532.00 1,470,666.00 984,554.00 Bank of America Corporation 286,044.42 1.62 28.64 1.10 10.85 2,354,507.00 1,381,476.00 957,262.00 Goldman Sachs Group Inc 78,165.51 1.35 28.57 0.96 11.81 931,796.00 158,257.00 81,656.00 Morgan Stanley 76,863.92 1.36 21.18 0.88 10.78 853,531.00 187,820.00 115,579.00 S&P 500 TR USD 8.99 26.14 Snapshot Total Financial P/E P/E P/B P/E Dividend Debt Tax Leverage 1 Ratio Ratio EPS TTM PEG Ratio Ratio Ratio Yield % to Total Rate % Yr - Current Forward Current Forward TTM Equity FY 1 FY1 FY 1 JPMorgan Chase & Co 12.59 11.99 9.80 1.82 1.70 11.99 2.58 1.52 11.38 0.20 Bank of America Corporation 11.73 10.68 2.71 1.39 1.17 10.68 1.98 1.03 9.69 0.19 Goldman Sachs Group Inc 9.71 9.27 23.86 0.85 9.27 1.70 3.62 11.80 0.16 Morgan Stanley 10.07 9.02 4.60 1.05 9.02 2.75 2.64 11.90 0.21 S&P 500 TR USD Investment Growth
Time Period: 11/1/2014 to 10/31/2019
140.0%
120.0%
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
-20.0%
-40.0% 4/2015 10/2015 4/2016 10/2016 4/2017 10/2017 4/2018 10/2018 4/2019 10/2019
JPMorgan Chase & Co 135.6% Bank of America Corporation 97.6% Goldman Sachs Group Inc 20.8% Morgan Stanley 46.9% S&P 500 TR USD 66.8% 11/3/2019 JPMorgan Chase & Co US Dollar Page 6 of 10
Source: Morningstar Direct JPMorgan Chase & Co JPM
Competitor One Competitor Two Wells Fargo- Wells Fargo & Co. is a diversified, Citigroup - Citigroup Inc., a diversified financial community-based financial services company. It is services holding company, provides various engaged in the provision of banking, insurance, financial products and services for consumers, investments, mortgage, and consumer and commercial corporations, governments, and institutions in finance. The firm operates through the following North America, Latin America, Asia, Europe, the segments: Community Banking, Wholesale Banking, Middle East, and Africa. The company operates Wealth & Investment Management, and Other. The Other segment refers to the products of WIM (Wealth through two segments, Global Consumer Banking & Investment Management) customers served through (GCB) and Institutional Clients Group (ICG). The community banking distribution channels. The GCB segment offers traditional banking services to Company offers its services under three categories: retail customers through retail banking, personal, small business and commercial. It provides commercial banking, Citi-branded cards, and Citi retail, commercial and corporate banking services retail services. The ICG segment provides through banking locations and offices, the Internet and wholesale banking products and services such as other distribution channels to individuals, businesses fixed income and equity sales and trading, foreign and institutions in all 50 states, the District of Columbia exchange, prime brokerage, and derivative and in other countries. services.
Competitor Three Competitor Four Bank of America - Bank of America is a Morgan Stanley - Morgan Stanley provides financial institution, serving individual investment banking products and services to its consumers and others with a range of banking, clients and customers including corporations, investing, asset management and other financial governments, financial institutions, and and risk management products and services. individuals. It operates through the following The Company, through its banking and various business segments: Institutional Securities, Wealth non-bank subsidiaries, throughout the United Management, and Investment Management. The States and in international markets, provides a Institutional Securities segment provides financial range of banking and non-bank financial advisory, capital-raising services, and related financing services on behalf of institutional services and products through four business investors. The Wealth Management segment segments: Consumer Banking, which comprises offers brokerage and investment advisory services. Deposits and Consumer Lending; Global Wealth The Investment Management segment provides & Investment Management, which consists of equity, fixed income, alternative investments, real two primary businesses: Merrill Lynch Global estate, and merchant banking strategies. Wealth Management and U.S. Trust.
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Source: Morningstar Direct JPMorgan Chase & Co JPM
Strengths: Weaknesses: Leadership of Jamie Dimon Heavily affected by adverse economic conditions Jamie Dimon has inspired confident amongst investors his entire career. held Since JPM is so heavily diversified in areas such as consumer banking, mortgage largely responsible for steering the bank through the financial crisis and the bank’s lending, and wealth management; poor economic health could heavily affect JPM. assets have risen by more than 100% since his appointment, while earnings have An economic downturn could cause people to lose jobs and could decrease increased threefold. application for loans and mortgages. Out performance of primary competitors Brexit and China Trade deal fallout on consumers JPM has a market cap of $396 billion. No other major bank comes close to a JPM relies heavily on commercial and consumer loans. Trade wars typically mean market cap of that size. JPM has also out performed it’s competitors in 1 year less demand for loans both domestically and globally. This will hurt JPMorgan’s growth. future profitability. JPMorgan also has a heavy presence in Europe and the UK. A no The Largest Bank in the United States deal Brexit can complicate employment and other factors that affect JPM’s JPM is clearly considered the largest bank in the United States with assets totalling $2.74 profitability. trillion. The closest competitor by asset total is Bank of America with $2.38 trillion in Performance cyclical to economy assets. JPM has shown over the years that it generally follows the economy performance Chase Brand wise. JPM moves with the economy due to their heavy presence in investment Chase is the name for JPM’s retail banking sector. Chase deals with online banking, credit banking and asset wealth management. Another area of the economy that impacts cards, auto loans, and home loans. Chase is a mainstream retail banking giant that only JPM is interest rate environment. JPM generates revenue off interest on loans. increases JPM’s size and reach. When the fed decides to cut interest rates, JPM loses money. Most popular among millennials Competition from Financial institutions JPM’s popularity amongst millennials is due to their large Chase presence. Specifically, JPM has many competitors that offer similar services. Competition from these Dimon pointed to the popularity of Chase’s Sapphire card, which offers travel perks and lending institutions can pull away from JPMorgan’s primary services. Positive news points, as one of the ways the bank is luring in the under-40 set. or events from these competitors can pull customers and hurt the growth of Online Banking JPMorgan. JPM has a strong online banking presence stemming from their Chase brand and demand for online banking among millenials. JPM, the highest spender, has a $11.4 billion technology budget this year, a 5.6% uptick from last year's $10.8 billion.
Opportunities: Threats: Online Banking and Technology Slowing Global/Domestic Economic Growth 49 million active digital customers and is continuing to grow. JPMorgan continues A slowing economy hurts JP Morgan’s revenue streams. A slowing economy causes to grow and invest in Online and Technology will allow more people to use a decrease in loan volume, consumer sentiment, and business investment. The JPMorgan’s services with ease. banking industry as a whole takes a hit during these times. Expansion into medical payment transaction processing Recently bought payment processing firm, InstaMed in a $500 million acquisition. Continuing global tension This got them into the $3.5 trillion market for U.S. health-care spending. They Global tension can lead to a slowing global economy. A slowing global economy processed $94 billion in transactions last year. This market is set to expand greatly hurts JP Morgan specifically due to their high foreign presence. as medical costs continue to rise Regulation Roll Back Cyber Attacks Rollbacks on legislation can provide more opportunity for growth and allow banks Cyber attacks can be the biggest threat to the financial industry since the industry to increase their dividends to stockholders. Decreased regulations can allow for has not seen a large scale cyber attack yet. more loan investments Potential 2020 Republican President Potential 2020 Democratic Party President Typically a Republican Party President has allowed for less regulation on not only Large banks and wealth distribution is a forefront issue of the Democrat party. financial institutions but also business as a whole. Reduced regulations can allow Potential tougher regulation on the banking industry. banks to explore into different and more risky investments that can yield more profitability.
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Source: Morningstar Direct JPMorgan Chase & Co JPM
Valuation: Discount Cash Flow Model (DCF) Using the DCF model, we arrived at a fair intrinsic value of 142.66. We believe that this is more realistic valuation of the stock. We are very optimistic about JP Morgan's long term growth but slowing economic growth and macroeconomic events slow JPMorgan’s short term performance.
Valuation: Discount Dividend Model (DDM) Using the Discount Dividend Model, we arrived at a fair value of 130.24 for the stock. We believe that this undervalues JPMorgan and their growth potential. JPMorgan continues to increase their dividends to their stockholders and will continue to do so especially headed into a period of economic uncertainty
Valuation: Multiple Valuation The Multiples Valuation yielded a fair value of $79.23 for JPMorgan Chase. This valuation completely undervalues JPMorgan value and growth. This was calculated by taking the 10-year average historical PE ratio multiplied by the average estimated earnings per share for the next 5 years . We believe that this is not a accurate depiction of JPMorgan’s fair value.
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Source: Morningstar Direct JPMorgan Chase & Co JPM
Bloomsburg Investment Group Disclaimer This report was developed by student members of the Bloomsburg Investment Group (BIG). The purpose of the report is to provide research analysis of securi�es to poten�al and exis�ng donors of The BIG Fund. The report is designed to exemplify the abili�es of our members through investment research and analysis. Analysts of the Bloomsburg Investment Group and The BIG Fund are not registered brokers, investment advisors, or licensed financial professionals. The generated opinion of our analysts is not an offer or solicita�on to buy or sell any security, and due diligence is recommended before making any financial transac�on. Informa�on included in this report was compiled from different public sources. Not all relevant data was included into the report, and accuracy is not guaranteed. Students, faculty, and staff of Bloomsburg University may have a financial interest in any company listed in this report.
Sources Cited JPM SEC 10K Filing
JPM Quarterly Earnings Reports
CNBC
Market Watch
Barrons
Yahoo Finance
Capital IQ
Bloomberg Terminal
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Source: Morningstar Direct