Barron’s thinks JPMorgan could be worth $US80 per share.
In its cover story this weekend, Barron’s made the case for shares of the bank giant to rise 30% by next year, arguing that relative to its peers shares of the bank are cheap and even just a modest increase its in price-to-earnings ratio could send shares notably higher.
JPMorgan trades at about 10 times earnings compared to 16 for the S&P 500 and one of the lowest multiples among big US banks.
As for why JPMorgan is currently trading at such a cheap valuation, Barron’s Andrew Bary writes:
So why does JPMorgan trade so cheaply? For starters, investors want to see an end to a seemingly never-ending series of legal settlements and penalties. The entire group of mega-financials — Citigroup (C), Bank of America (BAC), Goldman Sachs (GS), and Morgan Stanley (MS) — trade for 10 to 12 times estimated 2015 earnings. Wells Fargo (WFC), which has a higher return on equity, commands a P/E of 13. The large financials could be one the biggest pockets of value in the stock market, where it’s tough to find any major group of stocks trading at close to 10 times earnings.
Bary also notes that some investors “view JPMorgan as a black box — simply too big and complicated to understand.”
JPMorgan CEO Jamie Dimon told Bary that the bank’s risks in investment banking and derivatives are overstated, and said the bank is the “Wal-Mart of fixed income.”
Bary adds that the prospect of higher interest rates could aid the bank’s return on capital, serving as a tailwind to make the stock “emerge as an exciting growth story in the next few years.”
In pre-market trade on Monday, shares of JPMorgan were up more than 1.5%.