JPMorgan: Upgrade Winner
The broad indexes all rose after Procter & Gamble (PG) reported fiscal second-quarter earnings of $1.22 a share on revenue of $22.2 billion, beating the consensus EPS estimate of $1.11 on revenue of $21.91 billion, among analysts polled by Thomson Reuters. P&G also increased its core earnings per share guidance for the fiscal year to $4.07 from $3.97 amid "strong productivity improvement and resulting cost savings." The company also increased its outlook for share repurchases to $6 billion from $5 billion. P&G's shares rose 4% to close at $73.25.
The KBW Bank Index (I:BKX) was up slightly to close at 54.12, after the Census Bureau announced that new-home sales fell to a seasonally adjusted annual rate of 369,000 in December from an upwardly revised 398,000 in November. Economists, on average, were expecting December new-home sales of 385,000, according to Briefing.com.
JPMorgan Chase's shares have now returned 8% year-to-date, after returning 36% during 2012.
The shares trade for 1.2 times tangible book value, according to Thomson Reuters Bank Insight, and for and for 8.2 times the consensus 2014 EPS estimate of $5.75. The consensus 2013 EPS estimate is $5.34.
Based on a quarterly payout of 30 cents, the shares have a dividend yield of 2.54%.
Deutsche Bank analyst Matt O'Connor on Friday upgraded JPMorgan Chase to a "Buy" rating from a "Hold" rating, while raising his price target for the shares to $53 from $48, saying the shares had "risen 32% since Aug 2 vs. +62% for the other four market sensitive banks on average," and that the shares "now trade at a discount to other US market sensitive banks on 2013E and in line on our 2014E and 2015E."
The analyst expects JPMorgan Chase to announce plans to cut annual costs in a range of $3 billion to $5 billion, at the company's investor conference on Feb. 26, and that half the cost savings "will likely be incremental to what's already been disclosed," and include "declines in the cost to service mortgages not owned by JPM (worth $1.5-2b annually over the next 2-3 years), as well as costs associated with mortgages on balance sheet (another $0.5-0.7b opportunity)."
"Longer term, we expect JPM to be the best-positioned market sensitive bank for a pickup in consumer loan growth (which we expect to occur by the end of this year as private sector deleveraging comes to an end)."
O'Connor estimates that JPMorgan Chase will earn $5.30 a share in 2013, with EPS increasing to $5.83 in 2014.
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