JPMorgan Chase May 2014 Quarterly Valuation

| About: JPMorgan Chase (JPM)


JPMorgan is suitable for Defensive Investors and Enterprising Investors following the ModernGraham approach.

The company is currently significantly undervalued by the ModernGraham valuation model.

The market is implying an estimate of only 1.49% earnings growth, well below the demonstrated level of the company's recent history.

In the wake of the great financial crisis, it can sometimes be difficult for Intelligent Investors to find a solid financial company in which to invest, because they require specific achievements over the historical period. Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn't be considered when evaluating the company's prospects, but doing so would involve speculation. We don't know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before. By continuing to require the same standards for the historical period, Intelligent Investors are able to whittle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment. In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company. By using the ModernGraham method, one can review a company's historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a specific look at how JPMorgan Chase & Co. (NYSE:JPM) fares in the ModernGraham valuation model.

JPM Chart

JPM data by YCharts

Defensive Investor - must pass all 6 of the following tests: Score = 6/6

  1. Adequate Size of Enterprise - Market capitalization of at least $2 billion - PASS
  2. Earnings Stability - Positive earnings per share for at least 10 straight years - PASS
  3. Dividend Record - Has paid a dividend for at least 10 straight years - PASS
  4. Earnings Growth - Earnings per share has increased by at least 1/3rd over the last 10 years, using 3-year averages at the beginning and end of the period - PASS
  5. Moderate PEmg ratio - PEmg is less than 20 - PASS
  6. Moderate Price-to-Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - PASS

Enterprising Investor - must pass all 3 of the following tests or be suitable for a defensive investor: Score = 3/3

  1. Earnings Stability - Positive earnings per share for at least 5 years - PASS
  2. Dividend Record - Currently pays a dividend - PASS
  3. Earnings growth - EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $54.55
MG Value $129.21
MG Opinion Undervalued
Value Based on 3% Growth $68.85
Value Based on 0% Growth $40.36
Market Implied Growth Rate 1.49%
PEmg 11.49
PB Ratio 0.94

Balance Sheet - 3/31/2014

Total Debt $306,463,000,000
Total Assets $2,476,986,000,000
Intangible Assets $58,106,000,000
Total Liabilities $2,257,331,000,000
Outstanding Shares 3,784,710,000

Earnings Per Share

2014 (estimate) $5.06
2013 $4.35
2012 $5.20
2011 $4.48
2010 $3.96
2009 $2.24
2008 $0.84
2007 $4.38
2006 $3.82
2005 $2.32
2004 $1.45

Earnings Per Share - ModernGraham

2014 (estimate) $4.75
2013 $4.41
2012 $4.07
2011 $3.40
2010 $2.92
2009 $2.51

Dividend History

JPM Dividend Chart

JPM Dividend data by YCharts


JPMorgan Chase is suitable for Defensive Investors and Enterprising Investors. The company passes all of the requirements of both investor types, which is a rare accomplishment. As a result, value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company and comparing the company to other opportunities through the ModernGraham Valuation Index. From the valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.92 in 2010 to an estimated $4.75 for 2014. This strong level of demonstrated growth outpaces the market's implied estimate of only 1.49% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price at this time.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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