Shares of JPMorgan Chase & Co. (JPM) are about 60% over the last two years, a return that has just about doubled that of the S&P 500, and that rally looks set to continue according to veteran bank analyst Dick Bove. Speaking from five decades of experience, Bove told CNBC that the banking giant is “probably the best bank” that he has ever analyzed, despite a “mediocre” Q4 earnings report, there are a number of reasons to maintain a bullish outlook.
Bove raised his end of year price target for the largest U.S. bank to $128.45, which would mean a rise of almost 14% over the course of the year from Thursday’s close of $113.26. Year to date, the stock is already up 5.9%, slightly more than the 5.7% return of the KBW Nasdaq Bank Index (BKX) since the start of the year, and ahead of rivals Wells Fargo & Co (WFC) and Citigroup Inc. (C), with respective returns of 5.4% and 4% for the year.
Despite facing a $2.4 billion charge due to new tax legislation, Q4 earnings came in at $1.76 a share and total revenue was $25.45 billion, both of which outperformed consensus estimates. However, those results are nothing to get overly excited about according to Bove, who finds the real support for the bank’s shares in the future.
JPMorgan is currently trading at a forward price-to-earnings ratio (PE ratio) of 13.2, slightly more than the 13.1 average forward PE ratio of five of its big bank rivals. (To read more, see: JPMorgan Q4 Earnings Friday: What to Expect.)
The new tax legislation that was signed into law by President Donald Trump at the end of last year pushes the bank’s effective tax rate down to 19% from the previous 25%. That alone should boost earnings as the bank will be able to retain more of its revenues.
Another positive for the bank moving forward comes from rising interest rates. The Federal Reserve’s current path of tightening monetary policy will push interest rates up allowing banks to increase their net interest margins from the low levels induced by the previously very low interest rate environment. (To read more, see: Banks Set to Profit from Tax Cuts and Rate Hikes.)
Aside from this strong environment, one of JPMorgan’s strongest assets is its CEO, Jamie Dimon. Through strong leadership and key acquisitions, the legendary banker transformed JPMorgan into the largest bank in the U.S., and brought the bank through the Great Recession relatively unscathed.