JPMorgan Chase: Financial Winner
The KBW Bank Index (I:BKX) rose slightly to close at 53.92, with 14 of the 24 index components advancing.
S&P Dow Jones Indices on Tuesday said that for the 12-month period through November, the S&P/Case-Shiller 20-city home price index showed a 5.5% increase in U.S. home prices from a year earlier. David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, said "the November monthly figures were stronger than October, with 10 cities seeing rising prices versus seven the month before."
"Winter is usually a weak period for housing, which explains why we now see about half the cities with falling month-to-month prices compared to 20 out of 20 seeing rising prices last summer," he said.
Jefferies analyst Ken Usdin said in a report on Tuesday that "most housing data was below expectations this month, but fundamentals are still improving nonetheless." Usdin added that demand continues to increase as home inventories decline, and that "prices are still firming."
The analyst expects the strengthening housing market to feed a continued improvement in credit quality, resulting in lower mortgage loan charge-offs for banks.
Shares of JPMorgan Chase have now returned 8% this year, following a 36% return increase in 2012.
The shares trade for 1.2 times tangible book value, according to Thomson Reuters Bank Insight, and for 8.2 times the consensus 2014 earnings estimate of $5.75, among analysts polled by Thomson Reuters.
Based on a 30-cent quarterly payout, the shares have a dividend yield of 2.55%.
Stifel Nicolaus analyst Christopher Mutascio on Monday said in a report that JPMorgan "trades at the lowest P/E multiple within our large-cap bank coverage universe." The large-company banks covered by Stifel Nicolaus were trading at an average of 9.7 times the firm's 2014 earnings estimates.
Mutascio said the market was likely keeping the valuation of JPMorgan shares behind peers because of the company's "size, exposure to re-regulation, and the 'London Whale' fiasco." But he said that his projected 2014 return on average total assets (ROA) of 0.95% for JPMorgan "is only modestly lower than the peer group average/median range of 1% to 1.07%."
The analyst asked whether JPMorgan should "trade at a 31% discount to CMA, a 20% discount to STI, and a 19% discount to KEY -- all of which have the same, if not lower, projected ROAs." Mutascio estimates that the 2014 ROA for Comerica(CMA) will be 0.75%, while the ROA for SunTrust(STI) will be 0.87% and for KeyCorp(KEY) will be 0.94%.
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