Is JPMorgan Overstressed?

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With shares of JPMorgan Chase & Co. (NYSE:JPM) trading at around $50.02, is JPM an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

The FED runs a stress test on banks once per year. This is good for building capital levels, and it can help prevent questionable practices that took place in the past. Most banks passed the stress test this year, but JPMorgan was told that it needed to resubmit its capital plans by then end of the third quarter. The stock has been in decline ever since. The FED saw “weakness in their capital planning process.” JPMorgan’s share buyback program has been cut to $6 billion from $15 billion. On the other hand, there will be a dividend increase of 27 percent to $0.38 from $0.30 from last quarter.

The FED also stated that JPMorgan would need $32.3 billion to survive in a doomsday scenario. This is a much larger amount than JPMorgan felt it would need to survive, which was $200 million.

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The chart below compares fundamentals for JPMorgan, SunTrust Banks (NYSE:STI) and The PNC Financial Services Group (NYSE:PNC). Of course, SunTrust and PNC are much smaller banks, but JPMorgan is always compared to other big banks. This was done to offer a different angle. JPMorgan has a market cap of $143.61 billion, SunTrust has a market cap of $15.56 billion, and PNC has a market cap of $35.30 billion.

JPM

STI

PNC

Trailing   P/E

9.62

8.09

12.60

Operating   Margin

35.88%

35.33%

27.11%

ROE

10.98%

9.67%

7.61%

Dividend   Yield

2.40%

0.70%

2.40%

Operating   Cash Flow

$25.08 Billion

$2.01 Billion

$6.83 Billion

Short   Position

1.20%

N/A

N/A

Beta

1.65

1.75

1.11

 

Let’s take a look at some important numbers prior to forming an opinion on this stock.

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