Will a Recent Settlement Allow JPMorgan Chase to Grow?

With shares of JPMorgan Chase (NYSE:JPM) trading around $53, is JPM an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

JPMorgan Chase is a financial holding company that provides various financial services worldwide. The company is engaged in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing, asset management, and private equity. Financial services companies like JPMorgan Chase are essential for well-functioning economies around the world.

JPMorgan Chase has reached a settlement with regulators in the U.S. and the U.K. over the $6 billion London Whale trading scandal, agreeing to pay $800 million in fines and admit wrongdoing, which could lead to more private lawsuits. According to a report from the New York Times, the admission of wrongdoing is “groundbreaking,” but the paper still noted the JPMorgan's senior executives got away without charges. The bank is still facing another fine from the Commodity Futures Trading Commission.

T = Technicals on the Stock Chart Are Mixed

JPMorgan Chase stock has been moving higher in recent years. The stock is currently trading near prices not seen since before the Financial Crisis. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, JPMorgan Chase is trading between its key averages, which signal neutral price action in the near-term.

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of JPMorgan Chase options may help determine if investors are bullish, neutral, or bearish.

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
JPMorgan Chase Options	25.49%	56%	55%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts as compared to the last 30 and 90 trading days.

	Put IV Skew	Call IV Skew
October Options	Flat	Average
November Options	Flat	Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on JPMorgan Chase’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for JPMorgan Chase look like and more importantly, how did the markets like these numbers?

	2013 Q2	2013 Q1	2012 Q4	2012 Q3
Earnings Growth (Y-O-Y)	32.23%	33.61%	54.89%	37.25%
Revenue Growth (Y-O-Y)	13.67%	-3.57%	10.16%	5.82%
Earnings Reaction	-0.30%	-0.60%	1.01%	-1.14%

JPMorgan Chase has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have expected more from JPMorgan Chase’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has JPMorgan Chase stock done relative to its peers, Bank of America (NYSE:BAC), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), and sector?

	JPMorgan Chase	Bank of America	Citigroup	Wells Fargo	Sector
Year-to-Date Return	20.64%	24.50%	28.77%	24.77%	22.14%

JPMorgan Chase has been a poor relative performer, year-to-date.

Conclusion

JPMorgan Chase is a bellwether in the banking and financial space that forms an essential part of the United States financial system. The company has reached a settlement with the United States and U.K. over the London Whale trading incident. The stock has been steadily rising and is currently trading at prices not seen since before the Financial Crisis. Over the last four quarters, earnings and revenues have been rising, however, investors have expected more from the company. Relative to its peers and sector, JPMorgan Chase has been a weak year-to-date performer. Look for JPMorgan Chase to catch-up and OUTPERFORM.