What to Make of JPMorgan’s Q4 Earnings Results

JPMorgan (JPM) is the largest U.S. bank by market cap. The company operates in four segments, Consumer & Community Banking, Commercial Banking, Asset & Wealth Management, and Corporate & Investment Banking.

JPMorgan’s stock fell more than $10 per share after its Q4 earnings were released and has fallen more since. The share price now stands about 13% down from its 52-week high. The Q4 earnings report contained mixed results.

I am neutral on JPMorgan stock.

Q4 Earnings Report

JPMorgan earned $3.33 per share in Q4, ahead of estimates by $0.30. Reported revenue came in at $29.26 billion, which was 3%, or $521 million, lower than expectations. Part of the earnings-per-share (EPS) growth was attributed to a reduction in the provision for credit losses. For the full year, JPMorgan reported EPS of $15.36.

The company reported a net income of $10.4 billion for Q4, which is lower than the Q3 2021 net income of $11.7 billion. The decline in net income can partly be attributed to rising non-interest expenses. These costs rose from $17.0 billion in Q3 2021 to $17.8 billion in Q4 2021. This amounts to a significant increase in just one quarter.

Other banks, such as Wells Fargo, have been aggressively cutting costs. The rising expenses at JPMorgan are concerning for shareholders. On the other hand, net interest income should come in much higher in 2022 as the Federal Reserve prepares to raise interest rates several times, likely beginning in March. Many are predicting at least four rate increases in 2022.

Share Buybacks and Dividend

One of the appeals of bank stocks for investors is the return of capital to shareholders. JPMorgan typically repurchases substantial amounts of stock. However, this number was lower in Q4 than any other quarter in 2021.

All told, the company had net repurchased just $1.9 billion in stock during Q4 2021 for an average price of $165.47. In Q2 and Q3 2021, the stock was repurchased for an average share price of $157. This may give an indication as to where shares are reasonably valued.

The dividend at JPMorgan remains attractive. The payout is currently $1.00 per share each quarter. This represents an attractive yield of 2.7%. The dividend is also extremely safe, with a payout ratio of just 25%.

JPMorgan is also a consistent dividend raiser, unlike other banks forced to trim the dividend during the pandemic or due to scandals. JPMorgan has raised the dividend for nine straight years. Even when the share price dips, as it did last week, investors can take solace in a safe and rising distribution from JPMorgan.

Wall Street’s Take

Turning to Wall Street, analysts are cautiously optimistic on JPMorgan stock. The company has a Moderate Buy rating based on nine Buys, four Holds, and one rare Sell recommendation. The average JPMorgan price target of $178.39 implies 19.2% potential upside.

Price targets have been lowered post-earnings and may be lowered more. These targets reflect the concern over the increases in non-interest expenses. In 2022, JPMorgan expects non-interest expenses to rise about $6 billion over 2021.

What Will 2022 Hold?

JPMorgan’s Q4 earnings reports were uninspiring, and the market reacted accordingly. The stock lost over 6% of its value after the earnings release. Non-interest expenses are rising, and analysts have expressed concerns.

Even so, this may have been an overreaction as JPMorgan remains one of the strongest banking stocks in the U.S. Interest rates will soon be rising, which will cause JPMorgan’s net interest revenue to increase. The dividend is safe, and investors can count on it to increase annually.

The falling share price will likely inspire management to purchase more stock in Q1 2022 than in Q4 2021. The forward P/E ratio of 14.5 indicates that the stock is now reasonably priced.

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