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Summary

  • The stock is getting its 2015 earnings estimates slashed.
  • The return on equity has declined.
  • The stock is in overbought territory and exhibits a greater risk ratio than I'd like.

The last time I wrote about JPMorgan Chase & Co. (NYSE:JPM) I stated, "Due to the low dividend yield, bearish technicals, and high valuation based on earnings growth potential I will not be pulling the trigger on this name right now." After writing the article the stock has dropped 4.57% (and got as low as 12.13%) versus the 3.46% gain the S&P 500 (NYSEARCA:SPY) posted. JP Morgan is a financial holding company and is engaged in investment banking, financial services for consumers and small business, commercial banking, financial transaction processing, asset management and private equity.

On April 11, 2014 the company reported first-quarter earnings of $1.28 per share, which missed the consensus of analysts' estimates by $0.11. In the past year, the company's stock is up 6.69% excluding dividends (up 9.39% including dividends) and is losing to the S&P 500, which has gained 18.71% in the same time frame. Since initiating my position back on 21May13, I'm up 3.31% including reinvested dividends and dollar cost averaging. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth buying more shares of the company right now for the financial sector of my dividend portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 14.26, which is inexpensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 9.71 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $5.97 per share and I'd consider the stock inexpensive until about $90. The 1-year PEG ratio (1.29), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 11.02%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 11.02%. Below is a comparison table of the fundamental metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

13Jan14

58.49

13.11

9.75

6.00

90

0.36

35.99

01Apr14

60.67

13.88

9.57

6.34

95

1.77

7.84

10Jun14

57.90

14.26

9.71

5.97

90

1.29

11.02

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 2.76% with a payout ratio of 39% of trailing 12-month earnings while sporting return on assets, equity and investment values of 0.9%, 10.8% and 7.5%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 2.76% yield of this company is good enough for me to take shelter in for the time being. Below is a comparison table of the financial metrics for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

13Jan14

2.60

34

1.0

11.8

6.7

01Apr14

2.64

37

0.9

11.5

7.1

10Jun14

2.76

39

0.9

10.8

7.5

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock in overbought territory with a current value of 71.04. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars increasing in height, indicating bullish momentum. As for the stock price itself ($57.90), I'm looking at $58.37 to act as resistance and $56.97 to act as support for a risk/reward ratio, which plays out to be -1.61% to 0.81%.

Recent News

  1. The head of mergers and acquisitions, Rob Sivitilli is leaving the company. Personal reasons were stated as for the reason of departure. His role was created back in September 2012 and he was the initial candidate. We're beginning to hear about lots of movement in the upper ranks at the bank and if I were a betting man, I'd say that this isn't the last person to leave for personal reasons.
  2. The city of Los Angeles is suing the bank for its horrible lending tactics stemming back to 2004. The city is stating that the bank has been directing minorities towards loans in which they couldn't afford realistically. These tactics were the major reason for foreclosures on peoples properties, making the cities income stream through property taxes diminish drastically. Don't be surprised if the bank has to settle this lawsuit as well.
  3. The CEO of Corporate and Investment Banking at the bank stated that nothing has really changed with respect to trading revenues from the last time the bank reported the issue about a month ago. The decrease in trading revenues will definitely impact second-quarter earnings and there is no doubt in my mind that it will continue for the better part of this year.

Conclusion

JPMorgan lost to KLA-Tencor Corporation (KLAC) in my Dividend Portfolio Super Bowl at the end of January and in that time span, KLA-Tencor is up 10.39% while JPMorgan is up 5.09%. Fundamentally, the company is inexpensively priced based on next year's earnings estimate and fairly valued on future earnings growth potential while sporting excellent near-term earnings growth potential, but earnings estimates for 2015 have decreased. Financially, the dividend is pretty good right now, but the return on equity has diminished. On a technical basis, the stock is definitely in overbought territory and the risk/reward ratio is definitely more on the risky side. Due to the stock being overbought, 2015 earnings estimate cuts, and declining return on equity, I will not be pulling the trigger here right now and will choose to reevaluate if the dividend yield gets closer to 3%.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: High-Yielding JPMorgan Is Too Risky For Me Right Now