JP Morgan Delivers Dominating Q4 2015 Earnings Performance

  • If you want safety, buy JP Morgan stock.
  • The bank's earnings were up 10% but the stock still trades at less than 10 times earnings.
  • Focus on financial technology for 2016.

With one analyst comparing its performance to basketball star LeBron James, JP Morgan Chase (NYSE:JPM) delivered a solid earnings report that beat analyst estimates.

JP Morgan Q4 2015 earnings came in at $5.4 billion or $1.32 per share, on revenue of $23.7 billion, representing an 11% return on equity. The consensus estimate had been for earnings of $1.26/share and revenue of $22.86 billion. A highlight was the bank’s performance in mergers, which outpaced its gains from bond trading for the first time in years during the quarter.

For the full year, the bank pulled in earnings of $24.4 billion or $6.00 per share, on revenue of $96.6 billion, a 13% return on equity. It credited cost cutting and lower legal costs for the improvement. Rival Goldman Sachs (NYSE:GS) was fined $5.1 billion the same day for false marketing about mortgage loans it was selling during the financial crisis.

Despite its strong performance, investors only nibbled on the company’s stock. It rose just 1.41%, to a little over $58/share, in the trading session after the announcement. However, the stock fell back by 2% in the regular trading session on January 15, wiping out the post announcement gains. The stock is still a relative bargain trading at a PE ratio of under 10.

The muted response has more to do with market psychology, which remains distinctly negative, than the performance of the bank, The stock “topped out,” as technical analysts say, in the weeks before the earnings release, and is likely to trade between support at $55/share and resistance at $60 while waiting for the market as a whole to break out in either direction.

Columnist Anthony Currie, after looking carefully through the release, said investors would be wise to look for financial technology stocks in 2016. That would mean companies like Intercontinental Exchange (NYSE:ICE), which runs the New York Stock Exchange and the leading oil futures market, or Visa (NYSE:V), the credit card transaction processor. But it is also a bullish call on JP Morgan Chase itself, which is advancing its technology platform on all fronts, is a major processor of transactions, and is doing more online analysis for clients and employees than before.

In any case, you have leisure to pick up a nice stock. JP Morgan Chase is the country’s biggest bank, with the strongest balance sheet, a P/E as previously noted under 10 and a dividend yield of 3.02% while the 10-year U.S bond is at 2.07%. It is a market bellweather, a stock you can own with confidence, and a fall in the stock price would indicate disasters elsewhere.

The bank itself is not wildly optimistic about its customers. Analyst Gabriela Santos said current analysis for the global economy are “lofty” and that the bulk of the market is going through an “earnings recession.” The bank is recommending itself and other strong financials, health care stocks and stocks tied to consumer spending for investment in 2016.

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  • I do not have any business relationship with the companies mentioned in this post.
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