- Small debt load: While the company’s long-term debt of $263.3 billion is rather substantial, it is rather minuscule compared to the company’s money market assets, totaling $679.3 billion as of the end of 2011; this small debt load allows the company to not be restrained as it can utilize its cash to finance expansion plans, not paying down debt
Weaknesses
- Relatively high volatility: At the moment, JPMorgan holds a beta ratio of 1.4, representing a company trading with considerably more volatility than the overall market, a minor downside for long-term investors as investors can become spooked
Opportunities
- Dividend growth: Since implementing its dividend program in 1827, JPMorgan has consistently raised its dividend payouts in times of economic growth, and is highly expected to continue to do so in the future; representing the financial strength of the company
- Credit-card segment: Credit card services make up 17.2% of the overall business, and the most important dynamics in this segment are credit-card loans outstanding and total charge volume, both of which have risen moderately over the past five years. Further growth could present opportunity to increase revenue.
- Retail banking segment: Approximately 17.4% of the overall business is concentrated in the retail-banking segment, and the most important dynamic in this segment is average deposits, or the total value of checking, savings, and other deposits held by the company. This has risen sharply over the past five years, and is widely projected to continue to do so into the future, which will substantially increase overall company revenue.
- Growth in consumer confidence: When consumer confidence prospers, spending increases, the use of credit-card services increases, and home purchasing accelerates, all of which benefit the company; any growth in consumer confidence could present the opportunity for the company to meet rising demand and thus increase revenue
- Mortgage segment: The historically low mortgage rates and attractive housing market have fueled substantial growth in JPMorgan’s mortgage banking segment, which constitutes 13.7% of overall business, and a continuation of attractive conditions for buyers could present the opportunity for the company to take advantage of an expanding market and increase revenue in the segment
Threats
- Looming financial settlements: The dust from the financial collapse is still settling, and there are still major looming financial settlements hanging over the company which could cost billions of dollars in lost profit
- Government regulation: Any government regulation which restricts JPMorgan’s ability to expand efficiently could pose a major threat to the company and cost the company billions of dollars in potential revenue.
Competitors:
Major publicly traded competitors of JPMorgan include Citigroup Inc (NYSE:C), Wells Fargo & Co (NYSE:WFC), Goldman Sachs Group Inc (NYSE:GS), and U.S. Bancorp (NYSE:USB). All of these companies operate in the financial industry and compete directly with JPMorgan.
Citigroup Inc (NYSE:C) is valued at $138.3 billion, pays out a dividend yielding 0.1%, and carries a price-to-earnings ratio of 16.3. The company possesses a price-to-book ratio of 0.8. Fundamentally, Citigroup Inc (NYSE:C)’s business model is profitable with a trailing-12 month profit margin of 11.8%. Looking forward, Citigroup Inc (NYSE:C) is anticipated to maintain low-single digit growth, in respect to revenue, until 2017.
Wells Fargo & Co (NYSE:WFC) is valued at $211.2 billion, pays out a dividend yielding 3.0%, and carries a price-to-earnings ratio of 11.3. The company possesses a price-to-book ratio of 1.5. Fundamentally, Wells Fargo & Co (NYSE:WFC)’s business model is strong with a trailing-12 month profit margin of 23.1%. Into the future, the company is projected to experience consistent and steady low single-digit growth in respect to revenue.
Goldman Sachs Group Inc (NYSE:GS) is valued at $69.2 billion, pays out a dividend yielding 1.3%, and carries a price-to-earnings ratio of 10.4. The company possesses a price-to-book ratio of 1.1. Fundamentally, Goldman Sachs Group Inc (NYSE:GS)’s business model is relatively strong with a trailing-12 month profit margin of 22.2%. In terms of revenue, the company is projected to experience flat-line growth with revenue fluctuating around the $35 billion mark.
U.S. Bancorp (NYSE:USB) is valued at $65.5 billion, pays out a dividend yielding 2.6%, and carries a price-to-earnings ratio of 12.2. The company possesses a price-to-book ratio of 1.9. Fundamentally, U.S. Bancorp (NYSE:USB) is the strongest of the group, with a trailing-12 month profit margin of 28.7%. Forward looking, the company is expected to experience steady mid single-digit growth in terms of revenue.
The Foolish bottom line
Financially, JPMorgan is extremely strong. The company possesses stable revenue growth, strong assets growth, and a reasonable valuation. Despite the company’s high volatility, its future is filled with cyclical growth. All in all, JPMorgan is an incredibly run company and should hand investors returns slightly outperforming the overall financial industry.
The article A Dominant Force in the Financial World originally appeared on Fool.com.
Ryan Guenette has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs and Wells Fargo. The Motley Fool owns shares of Citigroup Inc (NYSE:C) , JPMorgan Chase & Co (NYSE:JPM)., and Wells Fargo. Ryan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
