JPMorgan Chase: Best Bank Quarter Ever?

| About: JPMorgan Chase (JPM)
This article is now exclusive for PRO subscribers.

Summary

JPMorgan Chase easily surpassed Q4 estimates, prompting statements suggesting this was the best quarterly report ever.

The bank has seen huge gains off the 2016 lows leading up to the earnings report.

Valuation multiples are now back into more normal levels.

A flood of bank earnings hit the market this morning, the most important being from JPMorgan Chase (NYSE:JPM).

In no surprise, the large financial firm had a huge quarter. This was expected. But now investors question whether JPMorgan is a stock to own at these high prices.

The bank beat Q4 EPS estimates by a solid $0.27. Revenues were slightly above analyst estimates, but the best banking quarter ever probably can't fit the label on revenue growth of only 2.4%.

JPMorgan did hit record earnings due to an 11% return on common equity, and expense controls were off the chart.

For Q4, expenses were down $400 million from last year. Any time a company can raise revenues even so slightly while reducing costs, the results will be spectacular.

So while I question whether this is the best bank quarter ever, the reality is that it doesn't really matter. What matters is whether JPMorgan offers value to existing shareholders.

A key measure of value is tangible book value, which only grew 7% YoY. From a historical perspective, the stock now trades in the middle of the P/TBV range outside of the excessive values during the mid-2000s, prior to the financial crisis.

JPM Price to Tangible Book Value Chart

JPM Price to Tangible Book Value data by YCharts

Whether or not JPMorgan produced the best bank quarter ever, the large financial no longer offers a huge discount to value. Similar to prior periods, book value metrics can and will likely hit higher multiples, suggesting the stock could easily run to $100 for a P/TBV multiple of 2x.

The key investor takeaway is that the stock is no longer cheap, but long-term growth opportunities exist. As interest rates rise, the bank will see net interest income grow providing for long-term earnings growth.

The risk/reward equation is now in balance, but JPMorgan remains the best banking franchise to own long term.

Disclosure: I/we 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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.