JPMorgan Earnings: Revenue Outlook Increased Again as Higher Rates Boost Net Interest Income

JPMorgan Chase Stock at a Glance

• Fair Value Estimate: $153
• Morningstar Rating: 3 stars
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Wide

JPMorgan Chase Earnings Update

JPMorgan Chase JPM reported second-quarter earnings per share of $4.75, beating both the FactSet consensus of $3.97 and our own estimate of $3.95. This was primarily attributable to stronger net interest income, or NII, better trading results, and lower-than-expected First Republic acquisition expenses. The bank enters the second half of 2023 in a strong position. Its adjusted return of tangible common equity of 23% reinforces our wide moat rating, and the bank’s fundamentals are some of the strongest under our coverage.

JPMorgan adjusted its 2023 NII outlook upward from $84 billion to $87 billion, as higher rates are expected to stay a little longer and deposits to reprice slower than previously anticipated. While we view this update positively, we caution investors about slowing economic activity, continued deposit competition, and the finalization of Basel III rules. Also of note: The bank did not update its medium-term NII expectations of “mid-70s.” In other words, we think the bank is seeing peak NII. We think it will have to come back down eventually, and it seems management believes the same. Because of this, we do not plan to raise our through-the-cycle NII projections materially, although our short-term NII outlook will increase.

As we update our projections, we expect a mix of effects to roughly counteract each other. Rising short-term NII and slight increases to our longer-term NII outlook will be counterbalanced by an expectation for increased capital requirements. As such, we do not expect a material change to our current $153 fair value estimate. While JPMorgan is one of the strongest banks under our coverage fundamentally, we think the market already recognizes this, and we view the name as fully valued, with better bargains elsewhere.