JPMorgan Chase (JPM), led by Chairman and CEO Jamie Dimon, is one of world’s largest diversified banking firms, notes Steve Biggar of Argus Research, a leading independent Wall Street research firm.

JPMorgan operates a leading global corporate and investment bank and is the second-largest mortgage originator in the United States, after Wells Fargo. It also operates a large retail banking network and is a leading credit card issuer.

We are reiterating our "buy" rating following 2Q results, which included a 54% year-over-year drop in investment banking revenue, but a 22% increase in trading revenues and 19% growth in net interest income.

JPM raised its forecast for net interest income to at least $58 billion, up from the $56 billion announced at its Investor Day in May. It also reiterated its operating expense guidance of $77 billion, despite elevated inflation.

Other Investor Day goals called for a 17% return on tangible common equity, and plans to hire about 1,300 advisers (from a base of 4,700) by 2025, in line with the company’s goal of boosting wealth management assets to $1 trillion, and a new “buy now, pay later” offering for credit card customers.

Following the results, JPM decided to maintain its quarterly common stock dividend at $1.00 per share in light of higher future capital requirements. Along with the 2Q earnings announcement, management said it was temporarily suspending stock buybacks in order to quickly meet the higher requirements.

We continue to like JPM among the large banks given its better lending growth profile, strong credit card franchise, and expected market share gains in its capital markets businesses. We view the current forward multiple as undervaluing the franchise.

We are lowering our EPS estimates to reflect prospects for a continued subdued investment banking environment. We are also lowering our target price to $145 from $155 to reflect the ongoing compression of P/E multiples during a period of high inflation and increased economic uncertainty.

After a period of significant outperformance between mid-2020 and mid-2021, JPM shares have underperformed the broad market over the past year, which we believe reflects a moribund investment banking environment and expectations for higher credit loss provisions after a long period of benign provisions or reversals.

Over the past year, JPM shares have fallen 27%, compared to a 13% decline for the broad market. . Although the capital markets environment remains weak, the lending business should benefit from the Fed’s aggressive rate hike campaign.

JPM trades at a reasonable 9.5-times our 2022 EPS estimate. Our $145 target price (lowered from $155) assumes a multiple of 11.6-times our 2023 forecast.

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