The Razor’s Edge
2-Year Price History
Recent Price
(2/20/2009 4:00 PM)
$19.90
52-Week Price
$17.70 – $50.63
Market Capitalization
$76.9 Billion
Most Recent Dividend
$1.44
About JPMorgan Chase & Company
JPMorgan Chase & Company is considered to operate in the Financial
sector. They specifically operate in the Money Center Banks
business segment contained within the Banking industry.
A financial holding Company whose activities are organized, for management reporting purposes, into six business segments: Investment Bank, Retail Financial Services, Card Services, Commercial Banking, Treasury & Securities Services and Asset Management.
Ockham’s Rating
We are reaffirming our Fairly Valued rating for the time being because there have been no major changes in our analysis in the last week. In the following report we will look at the stock versus itself historically, which is clearly useful in order to evaluate if a security is overvalued or undervalued. In addition, we analyze the stock as a member of the Financials sector and the market as a whole to understand the volatility and risk and reward potential.
It is always scary to upgrade stocks in a market where everything seems to be headed downwards, but it is important to remember that these drops in price are often the best time to buy a bargain. We are not yet ready to upgrade JPM as of this week’s report because the fundamentals have not crossed a strategic threshold in our methodology, but we are certainly becoming more interested in some of the value that is being uncovered in this market downturn.
Looking at the basics, the price of JPM dropped from $27.63 as of 02/07/2009 to a price of $24.69 as of 02/14/2009. As long as fundamentals remain intact, this decrease does increase the attractiveness of JPM, but a drop of 10.64% is not substantial enough to warrant a upgrade at this time.
Also, there have been no meaningful adjustments in earnings expectations to report in the last week.
JPM Stock Evaluation
In this week’s report, we are reiterating our Fairly Valued rating on JPM. In the last week there has been no revisions made to earnings expectations, but our valuation has obviously been influenced by the decrease in price of 10.64%. While that price decrease has not caused an upgrade this week, we will continue to closely monitor the fundamentals in case a future change in rating is warranted. The complete fundamental analysis of JPM follows below.
JPM Revenue
As we have often noted, in our valuation methodology, "Cash is King." Well, it goes without saying that if a company cannot produce sales then there is no ability to generate cash flow. By that logic we look very closely at revenue numbers as our second most important factor in valuing a company’s stock. We have established reasonable Price to Sales per share ranges based on historical data of the last 10 years. For, JPM the high and low end of the Price to Sales per share ratios are 1.14x and 0.71x respectively.
Notice that JPM’s current Price to Sales per share ratio is 1.05x, which is above its historical average only slightly. So, while not a major concern it is worth noting that from a value perspective JPM does not look undervalued on a Price to Sales basis. However, were the Price to Sales ratio to drop by 13% (the historical average) then we would become more positive on this stock.
JPM Cash Earnings
Looking at JPM specifically in their Cash Earnings capabilities, Ockham views JPM as significantly below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for JPM, the current level of Cash Earnings compared to its historical levels helps identify where JPM is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 12.74 and a historical low Cash Earnings per share ratio of 7.55, an investor can relate where value becomes optimal.
So what does "significantly below" mean when we talk about Price to Cash Earnings numbers for JPM? From the Ockham perspective, we are looking specifically at JPM to see if the market is recognizing the huge disparity between JPM’s past stock price to Cash Earnings ratio to today’s levels. At a difference of 25% below the average historical Price to Cash Earnings ratio, our view would be quite positive at this point. However, as with all metrics, we need to also take other factors into account when looking at JPM. While we view better Cash Earnings metrics as very important, if the market is slow to identify this value, or if Cash Earnings were to fall from these levels, we would become more neutral in our stance.
JPM Dividends
A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure of a company’s inherent expectations.
Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from JPM against the historic high and low levels over an available data range. Because JPM has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In JPM’s case, the estimated annual dividend is $1.52 producing a current dividend yield of 6.16%. The highest dividend yield from JPM in recent history was 8.90% while the lowest dividend yield was 1.83%. A current dividend yield of 14.82% above the historical median is favorable in our analysis of JPM.
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