vy le_ j.p.morgan stock valuation project
TRANSCRIPT
J.P. MorganRecommendation:
BUYIntrinsic Value $80 > $68 Current Price
Mengjia Guan, Vy Le, Yuli Qian
Professor Lawrence Souza
Overview
● Background
● Financial Conditions
● Stock Valuation
● Recommendation
Background
● Type: Public● Traded as: NYSE, JPM● Founded: 2000● Founder: J. P. Morgan● CEO: James Dimon● Headquarters: New York City, NY● Industry: Investment and Customer Banking● Area Served: Worldwide● Number of employees: 265,259 (2015)● Market Value of Stock: $67.89 (Dec. 2015)● Assets: US$ 2.6 trillion (2014)
Operation Segment
● Consumer and Community Banking 46%● Corporate and Investment Bank 34%● Asset Management 12%● Commercial Banking 7%
Products and Services
● Markets & Investor Services● Treasury Services● Investment Management● Private Banking● Wealth Management & Brokerage
Leadership
Jamie DimonChairman and Chief Executive Officer
2004, 11 years
Harvard Business School
Marianne LakeChief Financial Officer
2007, 8 years
Reading University
Gordon SmithCEO, Consumer & Community Banking, Chase
2007, 8 years
Thunderbird School of Global Management
Doug Braunstein Executive Vice President and Chief Financial Officer
1986, 29 years
Harvard Law School
Jes Staley Chief Executive Officer—Investment Bank
1979, 36 years
Bowdoin College
Todd MaclinChief Executive Officer—Consumer & Business Banking
1982, 33 years
University of Houston
S.W.O.T AnalysisStrength
● Strong brand name and good financial position
● Excellent services for customers through extensive
retail network
● Largest bank in US in terms of sales, market value,
assets and profits
Weakness
● Overdependence on the U.S. market
● Stiff competition from other financial service providers
● Fluctuating markets result in instability
Opportunity● Expansion in other countries
● Investments across the world
● Commercial banking, and JVs
Threats● Changing government regulations and financial crisis
like recessions● Unstable mortgage market
Bank Ranking
Rank Institution Name Total Asset($T)
1 JPMorgan Chase 2.58T
2 Bank of America 2.14T
3 Citigroup 1.83T
4 Well Fargo 1.74T
5 Goldman Sachs 865B
Financial Conditions
Sources: Morningstar
Financial RatioGoldman
Sachs JP Morgan Wells FargoBank of America Peer Group
Industry Average Conditions
Profitability (%)
ROA 0.9 0.8 1.3 0.5 0.9 0.5 Good
ROE 10.5 9.8 13.1 4.5 9.4 7.3 Good
Leverage/Liquidity
Profit Margin 34.1 32.0 25.4 20.4 23.3 21.5 Good
Debt to Equity 2.5x 1.5x 1.1x 1.1x 15.7x 1.2x Average
Interest Coverage 2.5x 4.2x 7.7x 2.6x 4.2x 3.7x Good
Overall Good
Financial Conditions
Sources: Morningstar
Financial RatioGoldman
sachs JP Morgan Wells FargoBank of America Peer group
Industry Average Conditions
Equity
Forward P/E 9.7x 9.9x 12.1x 10.3x 10.7x 10x Average
Dividend Yield% 1.2 2.6 2.6 1.2 1.7 2.3 Good
Growth Rate
Revenue Growth% 6.2 -1.1 1.4 -3.4 1.4 -3.7 Good
Net Income Growth% 24 4.7 13.3 49.5 28.9 4.9 Below
Overall Average
Technical Analysis
● Upward trend line
● Big volume coming
● Trending towards $80
● Current Price $68
Target Price $80 > $68 Current Price
Trend Line
Support
Resistance
Valuation: Perpetuity Model
Discount Rate Stock Value Range
WACC 8% $93 High
ERM 9% $80 Medium
CAPM 10% $71 Low
Intrinsic Value $80 > $68 Current Price Premium 17%
CAPM
Risk-Free Rate 3%
Beta 1.2
ERM 9%
R 10%
Year 2014 Estimated 2015 Estimated 2016
EPS $5.29 $6.45 $7.22
Growth 22% 22% 12%
Valuation: Gordon Growth Model
i \ g 1% 2% 3%
i WACC: 8% $ 103 $ 120 $ 144
i CAPM: 10% $ 80 $ 90 $ 103
i ERM: 8% $ 90 $ 103 $ 120
Intrinsic Value $80 > $68 Current Price Premium 18%
CAPM
Risk-free rate 3%
Beta 1.2
ERM 9%
R 10%
Year 2014 Estimated 2015 Estimated 2016
EPS $5.29 $6.45 $7.22
Growth 22% 22% 12%
Valuation: Multiple Model
P/E Multiple U.S. Bank Wells Fargo BOA J.P. MorganGoldman
Sachs Citigroup
Estimated 2015 13.8x 13.3x 12.2x 11.1x 10.1x 9.7x
P/E Ratio Stock Value Range
13x $ 94 High
12x $ 87 Medium
11x $ 79 Low
Intrinsic Value $79 > $68 Current Price Premium 17%
Valuation: DCF Model
Year 2016 2017 2018 2019 2020 2021-TV
EPS 7.22 7.80 8.27 8.6 8.77 8.86
Growth Rate 12% 8% 6% 4% 2% 1%
PV 6.6 6.5 6.4 6.1 51.6 83
Value $79
Weighted Debt 60%
Weighted Equity 40%
R Debt 7%
R Equity 9%
WACC 8%
WACC Stock Value Range
8% $82 High
9% $79 Medium
10% $76 Low
Intrinsic Value $79 > Current Price $68 Premium 16%
Recommendation BUY
Intrinsic Value Scenario 3 Scenario 2 Scenario 1
Perpetuity - $80 5% 10% 25%
Gordon Growth - $80 5% 10% 25%
Multiple - $79 40% 30% 25%
DCF - $79 50% 50% 25%
Sum $79 $80 $78
Intrinsic Value $80 > Current Price $68 Premium 18%
Recommendation BUY
Trades:● Buy Stock● Buy on Margin● Buy Calls● Write Puts● Buy Financial Services ETFs● Buy Financial Services ETFs on Margin● Buy Calls on Financial Services ETFs● Write Put on Financial Services ETFs
Intrinsic Value $80 > $68 Current Price
Questions and Answers
Resources
“JP Morgan and Chase” MBAskool, BrandGuide Banking & Financial Services, Web. 4 DEC.2015
Slide, Blank. Jamie Dimon Dimon, Chairman and Chief Executive Officer (n.d.): n. pag. Web.
"Welcome to Market Realist." J.P. Morgan Looks to Deepen Customer Relationships. N.p., n.d. Web. 06 Dec. 2015.