JPMorgan May Become the First $1 Trillion Bank
A senior analyst at Wells Fargo estimates: JPMorgan is on its way to becoming the first bank in history with a market cap of $1 trillion — and could reach $2 trillion within 8 years. Wells Fargo raised the target price to $390 with an 'Overweight' rating, against the backdrop of record profits and a 21% surge in the stock.
JPMorgan Chase is expected to benefit from a number of tailwinds that will allow it to become the first bank to reach a market capitalization of $1 trillion, according to senior analyst Mike Mayo of Wells Fargo. Wells Fargo maintains an 'Overweight' rating on the bank's stock and recently raised its target price from $375 to $390 — a figure that implies an upside of more than 7% relative to Friday's closing price.
JPMorgan, managed by Jamie Dimon, closed on Friday with a market capitalization of $965 billion, after its stock rose 21% in the last 3 months against the backdrop of record profits in trading activities and mergers and acquisitions.
According to Mayo's forecast, crossing the trillion-dollar threshold is just a step along the way. Looking further ahead, the bank could reach a market capitalization of $2 trillion in the next 7 to 8 years, particularly as it deepens its investments in a range of high-growth businesses.
"JPMorgan's leading ability to invest for superior growth could help it not only cross the $1 trillion market cap milestone, but also reach $2 trillion within about 7 to 8 years," Mayo wrote in a review for clients.
Against the backdrop of the surge in value, Mayo describes the bank's operational strength over time: "JPMorgan Chase has excelled in both offense and defense over the last decade, during which it increased its market share in all core business lines, while streamlining its operations, presenting consistent earnings relative to other global banks, and creating a 'fortress balance sheet'."
Mayo's growth mechanism: EPS growth and reinvestment
Mayo explains that reaching the $2 trillion target relies on a business model that funds itself from profits, rather than just a change in valuation multiples.
"Reaching a $2 trillion market cap requires more earnings per share (EPS) growth than re-rating," Mayo noted. "JPMorgan's flywheel is a self-funding mechanism that leads to a return on tangible common equity that is far higher than its cost of capital."
According to his analysis, the bank reinvests massive profits into branches, bankers, technology, and international operations, and translates these expenses into increasing market share in the fields of deposits, credit cards, capital markets, and banking. As Mayo summarizes: "JPMorgan is aiming for growth in all areas, including deposits."
