JPM: QUICK TAKE ON 4Q12 RESULTS

Takeaway: $JPM 4Q12 results were solid on multiple fronts, and the stock still looks undervalued by 16% to us.

JPM's 4Q12 Results - Steady Progress

Overall, we found the JPM 4Q numbers solid. The company earned $1.39 vs. expectations for $1.20. We estimate core earnings were closer to $1.16, which adjusts for all of JPM's itemized one-time items as well as its reserve release. 

 

Reserve release was 19 cents, which was slightly higher than the 14 cents the Street was looking for. Nevertheless, on an apples-to-apples basis, we think they earned $1.16 vs. expectations for core earnings of $1.06. As such, we think this number should be enough to sustain the momentum we've seen YTD. 

 

Credit metrics were notably improved this quarter as net charge offs declined 65 bps QoQ, NPAs fell 4 bps, NPLs dropped 11 bps and reserve coverage rose 4% (reserves/NPLs) to 204%.

 

NIM ticked down 3 bps, but came in in-line with estimates and was a far cry better than WFC, and marks the second consecutive quarter in which JPM has significantly outperformed peers on NIM.

 

The bottom line is that tangible book value per share improved again this quarter, growing by 3.3% sequentially. Return on capital (tangible), meanwhile, came in at 14.8%, down slightly from last quarter's 15.7%. Growing tangible and improving returns should support further multiple expansion.

 

As we show in the chart below, the stock is trading near the high end of the range over the last few years, but based on where returns are relative to cost of capital, the stock is still trading at a 16% discount to fair value of $53.89, as we show in the second chart.

 

We highlight the key takeaways, as well as our macro team's levels on JPM, in the four charts below.

 

 

 

JPM: QUICK TAKE ON 4Q12 RESULTS - tbvps jpm

 

JPM: QUICK TAKE ON 4Q12 RESULTS - jpm quadrantizer

 

JPM: QUICK TAKE ON 4Q12 RESULTS - jpm earnings template

 

JPM: QUICK TAKE ON 4Q12 RESULTS - JPM LEVELS

 

 

Joshua Steiner, CFA