JPMorgan Earnings: Higher Rates and One-Time Gains Turbocharge Profits

Key Morningstar Metrics for JPMorgan Chase

• Fair Value Estimate: $168.00
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of JPMorgan Chase’s Earnings

JPMorgan Chase JPM continued to earn outsize profits in the second quarter, as its balance sheet remains favorably positioned for a high-interest-rate environment. The bank’s headline earnings were positively impacted by a nonrecurring gain related to Visa shares of $7.9 billion, partially offset by a donation of $1.0 billion to the bank’s foundation and net investment securities losses of $546 million. In our opinion, investors should ignore the noise around these nonrecurring items.

Excluding those items, the bank reported earnings per share of $4.40, 0.7% higher on a year-over-year basis. As we have repeatedly highlighted, the bank’s era of strong profit growth is over, and investors should brace for earnings to decline when the Fed starts cutting interest rates. That said, the bank’s current profitability is still quite strong. After adjusting for nonrecurring items, the second-quarter numbers resulted in a return on tangible equity of 20%, materially higher than management’s midcycle target of 17%. The results were driven by solid net interest income, strong investment banking recovery, and continued trading revenue strength.

We plan to increase our fair value estimate of $168 per share for JPMorgan stock by a mid-single-digit percentage as we incorporate these results. Approximately half this increase can be attributed to the time value of money, and the other half to rates remaining higher for longer than the market anticipated. Our overall thesis on the bank hasn’t changed, as we believe the current valuation remains demanding, and potential investors should wait for a better entry point in this high-quality name.