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Higher Valuations, Lower Risk for 2 Big Banks

We think JPMorgan and Wells Fargo are worth more with less uncertainty now.

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After updating our projections and accounting for the time value of money, we’ve raised our JPMorgan Chase (JPM) fair value estimate to $136 per share from $112 and our Wells Fargo (WFC) fair value estimate to $52 per share from $45. We also lowered our fair value uncertainty rating for both banks to medium from high, as economic uncertainty from the pandemic has declined. Even with the valuation increase, JPMorgan still trades above what we think it’s worth. Wells Fargo, on the other hand, appears uniquely undervalued in our U.S. banking coverage.

JPMorgan Chase is arguably the most dominant bank in the United States. With leading investment bank, commercial bank, credit card, retail bank, and asset- and wealth-management franchises, it is a force to be reckoned with. The bank's combination of scale, diversification, and sound risk management seems like a simple path to competitive advantage, but few others have been able to execute a similar strategy. Even the best-managed banks are not immune to the occasional stumble, but JPMorgan has seemingly managed to put all the pieces together in a more cohesive and less error-prone way than peers. With the importance of scale only increasing, we think it will be hard for competitors to catch up.

Eric Compton does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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