JPMorgan: This Generation's Version Of A Consumer Staples Stock

Jan.13.14 | About: JPMorgan Chase (JPM)

JPMorgan (NYSE:JPM) reports their q4 13 results before the opening bell on Tuesday, January 14th, with analyst consensus expecting $1.35 in earnings per share (NYSEARCA:EPS) on $23.68 billion in revenues, for expected year-over-year declines of -3% and -3% respectively.

My guess is - on an operating basis - JPM will beat results handily given the strength of capital markets and the Corporate side of the business.

However it is hard to know where to start in terms of the constant abuse and harassment of JPM by the Justice Department over what are now 4 - 5 year old issues stemming from the Mortgage Crisis and the Great Recession of 2008.

Jamie Dimon has to be asking himself, "Why did I (we) bother keeping the bank intact and solvent ? ", when his competitors, many of whom failed or required a much greater bailout, skate by any kind of prosecution and long-term impact to their reputation and capital.

While the US has been hit with banking crises regularly, going back as far as 1837 when Abraham Lincoln was just entering politics in Illinois (and probably even before that), Dodd-Frank and the anti-wealth, full-on regulation push from Washington has left large banks like JPM the functional equivalent of public utilities.

If you look at the forward revenue and EPS growth estimates for JPM, the Street analyst consensus is looking for 3% - 5% revenue growth and 8% - 9% EPS growth through 2016.

With a 30% return in the SP 500 in 2013, huge corporate bond issuance which likely ended up north of $1.1 trillion in volume, renewed strength in the housing market, better consumer credit, and the beginnings of growth in the corporate and industrial loan market, JPM will likely generate $5.60 - $5.65 in operating EPS (after the litigation charges) on $98.6 billion in revenue in 2013.

Remarkably that is still just a 1% decline in revenues year-over-year, while EPS growth is in the neighborhood of 7% - 9%.

I just don't think that Dodd-Frank and the regulators, will ever let these banks generate much robust revenue growth going forward, absent a sea change in the Washington political climate.

We are long JPM and have been for some time, but I don't see us increasing our position much over the next year.

JPM has a 2.60% dividend yield, with the dividend likely to increase over time.

I think the big banks have become the modern-day version of Consumer Staples stocks, with stable, consistent earnings and dividend growth, but not a lot of secular growth.

JPM's Forward EPS and Revenue Growth
Period Cons EPS







2016 (est) $6.89 9% $113.39 8%
2015 (est) $6.34 6% $104.82 4.5%
2014 (est) $5.97 6% $100.3 2%
2013 (est op EPS) $5.65 9% $98.64 -1%
Click to enlarge

Trading at 10(x) 2014 expected earnings and generating a 12% return on equity, this might be as good as it gets for JPM.

But we hope not.

Disclosure: I am long JPM, . I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.