Stocks’ Details 

JP Morgan Chase & Co.

JPM 2QFY20 Expectations: JP Morgan Chase & Co. (NYSE: JPM) is one of the largest financial institutions in the United States, with assets valuing ~$3.1 trillion and with employees more than 250,000 as on 31 March 2020. Recently, the company offered its opinion on economic recovery amid COVID-19 pandemic and its impact on the business, at the 2020 virtual conference. JPMorgan’s head of the corporate and investment banking division stated that it expects market revenues in 2QFY20 to be up more than 50% higher than the prior corresponding period. The positive impetus was on the back of robust fixed income and equities trading revenues. Further, investment banking fees in the end of June quarter is expected to be up by a percentage in the mid-to-high teens, while mergers and acquisitions will be "probably 15-20% down."

COVID-19 Update: In a recent update, the company stated that in March and April, it approved more than $45 billion in new credit for its clients who were impacted by COVID-19. The company donated $50 million worldwide to focus on the public safety and health, owing to the long-term economic challenges due to the rising COVID-19 pandemic. Additionally, JPM increased $950 million in new loans for its small business customers, during the first 60 days of the outbreak. The company remains on track to provide continuous service to its clients and customers, while ensuring safe work atmosphere.

Q1FY20 Operating Highlights: During the period, JPM reported earnings of 78 cents per share as compared to $2.65 per share reported in the year-ago period, due to a considerable rise in provisions related to coronavirus fears. The company reported net revenues of $28.3 billion, down 3% year over year. Among the positives, credit card sales volume increased 4%. The not so encouraging results were on the back of provision builds due to decrease in the macro-economic backdrop, losses linked to widening funding spread on derivatives and bridge book discounts.

Key Highlights (Source: Company Reports)

Stock Recommendation: The stock of JPM closed at $97.31 with a market capitalization of $296.5 billion. The stock made a 52-week low and high of $76.91 and $141.1 and is currently trading at the lower band of its 52-week trading range. The stock has corrected 0.56% and 10.08% in the last one month and one year, respectively. The coronavirus-caused disruptions are likely to continue to impede business actions. However, JPM’s focus on the credit card business and its efforts to expand along with solid trading performance are likely to support JPMorgan’s revenues. On TTM basis, stock is trading at a EV/Sales value multiple of 2.8x as compared to the industry median of 26.6x. Considering the aforesaid facts, and current trading levels, we give a "Buy" rating on the stock at the closing price of $97.31, down 2.55% as on 29 May 2020.

Wells Fargo & Company

Organizational Restructuring: Wells Fargo & Company (NASDAQ: WFC) is engaged in offering financial services, which includes banking, insurance, mortgage, investments, to name few, via three business segments - Community Banking, Wholesale Banking, and Wealth and Investment Management. On May 29, 2020, the company appointed two new Corporate Risk leaders along with an improved organizational structure design, which is intended to offer greater insight to review and mitigate risk across the company.

Other Recent Update: In another update, the company stated that it has enhanced its awards program to provide $900,000 to support cleantech and sustainable agriculture start-ups retain staff, in order to face the COVID-19 led impact.

1QFY20 Key Highlights: During the quarter, the company reported earnings of 1 cent per share, down from the year-ago quarter’s earnings of $1.20 per share. This comprises ~$3.1 billion reserve and several other items amid coronavirus led outbreak. Total revenues during the quarter stood at $17.7 billion, as compared to $21.6 billion reported in the year-ago period. Lower interest rate, and a tepid fee income had a negative impact on the result. Notably, lower mortgage banking revenues along with decreased gains on trading activities were major headwinds. Nonetheless, lower non-interest expenses along with escalation in loans and deposits indicate a robust capital position.

Key Highlight (Source: Company Report)

Other Key Highlights: Net interest income during 1QFY20 stood at $11.3 billion, which declined 8% on a pcp basis. As of 1 March 2020, allowance for credit losses, which consist of the allowance for unfunded commitments, stood at $12 billion, which increased 11.1% on pcp. WFC’s Tier 1 common equity under Basel III (fully phased-in) decreased from $148.1 billion to $134.7 billion.

Valuation Methodology: P/BV Multiple Based Relative Valuation (Illustrative)

Price/Book Value Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, *NTM-Next Twelve Months

Stock Recommendation: The stock of WFC closed at $26.47 with a market capitalization of $108.5 billion. The stock is trading at the lower band of its 52-week trading range of $22 to $54.75. The stock of the company went down by 11.77% in the past one month. Annualized dividend for the stock comes in at $2.04 with the current yield at 7.3%.  Despite several tensions amid COVID-19 crisis, Wells Fargo remains dedicated on sustaining its financial position. Moreover, the company is working on strategic initiatives, which is likely to reclaim the trust of its clients and shareholders. Based on the foregoing, we have valued the stock using illustrative relative valuation method, Price to Book Value multiple and have arrived at the target price of lower double-digit growth (in % terms). For the purpose, we have considered peers like Bank of America Corp (NYSE: BAC), Citigroup Inc (NYSE: C), Morgan Stanley (NYSE: MS), etc., Hence, we recommend a “Buy” rating on the stock at the current market price of $26.47 per share, down 2.76% on 29 May 2020.

Bank of America Corporation 

Retains Decent Asset Quality: Bank of America Corporation (NYSE: BAC) is engaged in offering a diversified portfolio of banking and other financial services across the United States of America. In a recent update, Bank of America, Morgan Stanley, IBM, and Accenture together offered in-kind support to the Brave of Heart Fund worth ~$8.5 million. The fund is formed to deliver financial support to the surviving family members and volunteers against coronavirus led crisis. Notably, Bank of America has donated around $5 million to the fund. In another update, the company stated that it has issued ~$1 billion corporate social bond to assist the battle against the COVID-19 pandemic.

Q1FY20 Operational Highlights: BAC announced its quarterly results, wherein the company reported total loans and leases of $1050.8 billion, up from $983.4 million as at 31 December 2019. CET1 ratio stood at 11.1%, as compared to 11.5% in Q4FY19. The business reported Supplementary leverage ratio (SLR) of 6.4%, which remains flat quarter over quarter. Net interest income came in at $12.1 billion, down by 2% on pcp. The company reported non-interest expense of $10.6 billion, as compared to $10.2 billion in previous quarter. As far as the asset quality is concerned, net charge-offs stood at 0.46%, up from 0.39% in previous quarter. Total revenues for the period came in at $5.2 billion, up from ~$4.2 billion reported in the year-ago quarter.

Key Highlights (Source: Company Reports)

Valuation Methodology: Price to Book Value Based Relative Valuation (Illustrative)

Price to Book Based Relative Valuation (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of BAC is closed at $24.12 with a market capitalization of ~$209.2 billion. The stock made a 52-week low and high of $17.95 and $35.72 and is currently trading at the lower band of the range. The bank has a healthy financial ratio along with decent asset quality and is expected to retain its leading position in the coming years. Considering the aforesaid facts, current trading levels and business prospects, we have valued the stock using price to book value based illustrative relative valuation method. For the purpose, we have considered peers like JPMorgan Chase & Co (NYSE: JPM), Wells Fargo & Co (NYSE: WFC), Morgan Stanley (NYSE: MS), etc., and arrived at a target price with a lower double-digit upside (in % terms). Hence, we give a ‘Buy’ recommendation on the stock at the closing price of $24.12, down 2.98% as on 29 May 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.