Edited by Adam Isaac
JPMorgan (JPM), established in 1823, provides global financial services via six segments. The Investment Bank segment delivers investment banking solutions and expert services, while the Retail Financial Services department offers regional banking solutions, auto finance services, and mortgage banking. The Card Services segment provides credit cards through a wide range of partner organizations, including United Airlines, and the Commercial Banking department provides treasury services, lending, asset management services, and investment banking. The Asset Management segment offers wealth management services and investment advice, while the Treasury and Securities Services department caters to institutional customers.
Overall, the company has performed extraordinary well in previous years, with a Fair Value per Share rating of $57.7. JP Morgan is generally significantly undervalued at the moment, with the stock trading between $37 and $38. The company's potential change or Margin of Safety rating is at 56.6 percent. According to Benjamin Graham and Warren Buffett, if the margin of safety is above 50 percent, an investor should think about buying the stock. The risks associated with the JP Morgan stock are also at a below-medium level. This is, therefore, an ideal time to buy the JP Morgan stock. In the following sections, I will explain and justify this claim.
The financial sector is very sensitive to economic fluctuations. Even so, financial service corporations improve rapidly out of recessions, mainly because interest charges seem to be lower. Investors should, therefore, seek out underrated financial investments while in economic recessions when stock rates are lower. These financial investments should subsequently be sold at a later date, usually while in the later stages of a bull market when stock rates are higher. Since the global economy is currently in the midst of recession, this is an ideal time to make financial investments.
JPMorgan Chase Discounted Cash Flow (DCF) Analysis
Historical Year Ended
Projected Year Ending
Free Cash Flow
Present Value factor
Present Value of free cash flows
According to this table of discontented cash flow company is doing a remarkable job. JP Morgan is producing very high revenue. JP Morgan will likely produce stable revenue in future years by increasing at a rate of 4 percent every year. The most notable and important factor to consider is JP Morgan's free cash flow. That is, JP Morgan is not leaking large quantities of money through its operating activities. Instead, JPM will likely have 18 percent of its sales in free cash flows over the next five years. Additionally, JPM has already had 16 percent of its sales in free cash flows for the previous five years. Last year, JP Morgan had 18 percent free cash flows, which is particularly high when considered in comparison with Wells Fargo's 16 percent and Citigroup's 11 percent. JP Morgan currently has an Enterprise value of $140,420 million.
Comparison with Competitors
JP Morgan has a 75 percent advantage over its competitors in Enterprise value. Specifically, JPM currently has an Enterprise value of $140 billion, compared with Morgan Stanley (NYSE:MS) that only has $37,279 million, Barclays (NYSE:BCS) that has $36 billion, and Goldman Sachs (NYSE:GS) that has $51 billion. Furthermore, JP Morgan also has a 75 percent cash flow margin over its competitors. As mentioned above, JPM has a 17 percent cash flow margin over the next five years. Last year, JPM produced an 18 percent cash flow margin, whereas Barclay plc produced only 9 percent, Morgan Stanley 16 percent, and Citigroup (NYSE:C) 11 percent.
This company is, therefore, clearly performing exceptionally well on all its financial metrics, including EBIT Margin. JPM has a 62 percent advantage against its competitors in Earnings before Interest and Tax (EBIT). JP Morgan will produce a 16 percent EBIT margin over next five years, whereas Goldman Sachs is only expected to produce a 35 percent margin, and US Banc only 23 percent.
It is, therefore, abundantly clear that the JP Morgan stock is significantly undervalued, largely due to its sensitivity to economic cycles. Nevertheless, the company's stock price will almost certainly increase over the next few weeks to nearly $40. This is based on an accepted rule in investment that financial services companies rebound quickly out of recessions. We have discussed a number of factors in this article, including an in-depth comparison with the company's primary competitors, and all have come out in JP Morgan's favor. With such evidence, it must be concluded that this is a perfect time to purchase JP Morgan stock.