Valuation analysis for JPMorgan Chase & Co. (NYSE:JPM)

For JPMorgan Chase & Co. (NYSE:JPM) Revenues are lower than they have been at any point since 2011, earnings are lower than they have been at any point since 2011, trailing 12 month EPS growth rates are negative on both a quarterly and yearly basis, and the stock has broken longer term support.  There are no fundamental reasons for us to be buyers of JP Morgan at this time.

In this article I have simplified the observation but recognize that this massive financial conglomerate has many moving parts, many of which none of us are privy to, and relationships exist with the Government and Governmental agencies that no one can precisely define.  I have largely considered financial institutions of this size to be capable of manipulating earnings; I believe I have seen it happen many times, so I have grown leery of trusting earnings results from companies like this.  When a financial institution can increase earnings by simply taking money from reserves to satisfy shareholder expectations like JP Morgan has done in the past it puts a cloud over all EPS results in my opinion.

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However, although some financial institutions do not like to report revenues, which is rather surprising to me, we do get this from JP Morgan and our observations based on revenue tells us that the revenue at JP Morgan has only been lower than it is now once since 2009.  In the fourth quarter of 2011 JP Morgan had revenues that were lower than they are now, but in every other quarter between 2009 and now revenue has been higher than the last reported revenue number.

This should be a major concern.  The concern is that revenues have been declining steadily, but the stock price has been pretty strong.  Since December of 2011 when revenues declined to a level that was lower than they are today, the stock has doubled.  Now, revenues are at relative lows again, but the stock is still close to its relative high. 

Our focus then shifts to earnings growth, and although I don't trust the earnings reports because I know financial institutions like this can take money from reserves to satisfy shareholder interests whenever they want, we must look at earnings as well.  Arguably, some of the data in my observations encapsulates reduced reserve requirements, but all of it is on record and measurable nonetheless.

I don't think a raw EPS chart is going to tell the story well enough (I have it for you anyway), but I will add this for us to think about.  Coincidentally, the last EPS result for JP Morgan was lower than it has been at any other time since the fourth quarter of 2011.

The above observation is interesting, but it does not do anything to help us identify the fundamental growth story for JP Morgan.  To do that we have to take an institutional look at earnings.  Instead of looking at one quarter, we look at trailing 12 month EPS Data every quarter and use that to identify earnings growth both on a quarterly and yearly basis.

Importantly, we also remove onetime events from our observations so that we are able to focus on earnings from operations.  This combination of trailing 12 month data and earnings from operations helps us populate our earnings growth charts for JP Morgan.  Please keep in mind that these are not raw EPS numbers, but instead trailing 12 month cumulated data compared year over year and quarter over quarter, every quarter, and plotted over time. 

This institutional observation tells us that quarterly EPS growth for JP Morgan is -2.04% and yearly EPS growth for JP Morgan is -5.54%.

Technical take:

According to our real time trading report for JP Morgan (JPM Report) the stock has broken longer term support and we would avoid the stock as a result.  The only way the stock could be a buy again is if it broke back above its converted resistance line, which was longer term support.

Disclaimer: Stock Traders Daily provides trading strategies, which by definition incorporate risk controls, and it has only engaged in buy and hold strategies twice since the turn of the century. The first was in October of 2002, and those buy and hold strategies lasted until 2006, and the second was in February of 2009, and those buy and hold strategies lasted until the end of 2010. Every point in between Stock Traders Daily has been providing risk controlled strategies, market based strategies, and strategies for approximately 3000 individual stocks, which are unbiased and which incorporate the notion that short term gains lead to long term success. There is a time and a place for buy and hold strategies and this is neither the time nor the place for that approach in our opinion. Risk controls are essential.

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