JPM: Buy the stock ahead of Analyst Day in early March.

The shares of JPM (JP Morgan Chase) have been exceptionally strong in recent times. Throughout this week, the stock has been setting multi-year high. In my last article on JPM prior to January earning, I noted that the firm could deliver a few cents surprise with respect to the bottom line performance and the stock could decidedly break above the $50 level.

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JPM has surprised the analyst community by delivering another confidence building results that surpassed the consensus EPS estimate by nearly 10 cents. This became the catalyst to propel the stock above psychological barrier of $50 level. In my opinion, the stock has not done going up. I expect throughout this year, the company will likely to continue to report robust earning growth, driven by improvement in the company operational metrics and higher net profit margin. Current consensus for JPM for 07 may turn out to be too conservative and 08 estimate could range anywhere between $4.70 to $5 level. In my opinion, the stock now is very much poised to head higher towards $60 level.

Confidence building Jan Quarter

Last Q performance was exceptional. Driven by strong performance in the investment banking and asset management segment, the company gave more credibility and confidence to the investment community. Trading performance of the firm has improved significantly. In addition, Credit Card business remains solid. Pipeline in the investment banking remains fantastic, driven by continued flow of M&A and private equity activities. Big question remains with the traditional banking side, namely retail financial services and commercial banking. However, I continue to believe that the economic indicators will be mixed, with some sectors such as housing and auto declining and other sectors such as retail and industrials leading the modest growth. The wage picture remains fair and I also expect the energy price will be caught in the trading range between $45 and $60. As such, I continue to believe that Fed will stand put with the rate and ease towards the end of this year. Should this happen, the rate picture become much more favorable for the retail banking segment and JPM earning growth will accelerate even further.

Own ahead of Analyst Day.

As the management team becomes more comfortable with meeting their previous guidance for profitability, I expect the company to picture even rosier outlook for future business. Also I suspect that JPM management team may decide to hike the dividend payment to the shareholder in the coming months and they could indicate this over the Analyst Day. Some are concerned about possibility of large acquisition for JPM which will dilute the company earning performance. However, I continue to believe that the company will be very opportunistic and take the deals that are additive to the earning performance. In my opinion, the market may anticipate the bullish tone of the analyst day and may buy ahead of the event. And you should be doing the same. I will pay close attention to what is said during the analyst day and ponder on the current target price of $60.


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