JP Morgan’s Record Heights: Exploring the Potential Peak of a Banking Titan

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JP Morgan (NYSE:JPM) is widely regarded as one of the best banks in the world. Founded in 1871, it has been dominating the banking industry for a long time. Recently, JPM stock has been a great investment. Earlier this month, it hit new all-time highs. The question is – how high can it go?

How high will JPM stock go?

When trying to answer this question, there are two main variables to consider.

The first is future earnings. Right now, Wall Street expects JP Morgan to generate earnings per share of $15.90 for 2024. This earnings forecast may not be accurate. Depending on factors such as economic conditions, interest rates, and stock market volatility, earnings could be higher or lower than this figure. But let’s assume for now that the forecast is going to be accurate.

The second variable is sentiment towards the stock. Today, JPM trades at an earnings multiple, or price-to-earnings (P/E) ratio, of around 11. But if sentiment towards the financial services company was to improve further, investors might be prepared to pay a higher multiple for the stock. In the last decade, JPM’s P/E ratio has risen as high as 14 (in 2017). If the operating backdrop was to remain healthy, we could potentially see the stock return to this earnings multiple. That would translate to a share price of around $223.

JPM share price targets

It’s worth noting that several brokers have JPM price targets around – or even above – that $223 level. For example, Morgan Stanley currently has a price target of $221 for JPM stock while Oppenheimer has a target price of $238. These targets imply upside of 23% and 33% respectively from the current share price.

What is the 5-year forecast for JP Morgan stock?        

Calculating a five-year forecast for a bank stock like JP Morgan isn’t easy. That’s because banks’ earnings tend to fluctuate a lot.

Let’s assume, however, that JP Morgan was able to generate earnings growth of 8% per year for the next five years. That’s roughly in line with the average earnings growth of the S&P 500 index over the last 20 years. This would take earnings per share to around $23.40 by FY2029.

If we apply the current P/E ratio of 11 to that EPS figure of $23.40, we get a stock price of $257. That’s nearly 50% above the current share price.

This earnings projection could be too optimistic, however. Ultimately, banks’ earnings can fluctuate a lot, depending on economic conditions. And in the years ahead, JP Morgan could experience earnings weakness. Particularly if we see a recession in the US.

Why is JP Morgan a value stock?

As for why JP Morgan has such a low valuation, it will be related to the fact that banking is highly cyclical in nature. In this industry, revenues and profits fluctuate a lot depending on economic conditions.

Given this cyclicality, investors are not willing to assign high earnings multiples to banks in the same way they are with stocks in sectors such as Technology and Healthcare. So, banks tend to trade at low valuations a lot of the time.

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