JPMorgan Chase (JPM) Valuation

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Company Profile (obtained from Google Finance): JPMorgan Chase & Co. is a financial holding company. Its principal bank subsidiaries are JPMorgan Chase Bank, National Association, a national banking association with branches in 23 states, and Chase Bank USA, National Association, a national bank that is the Company’s credit card issuing bank. JPMorgan Chase’s principal non-banking subsidiary is J.P. Morgan Securities Inc., its United States investment banking firm. Its activities are organized into six business segments: Investment Bank, Retail Financial Services (RFS), Card Services (CS), Commercial Banking (CB), Treasury & Securities Services (TSS) and Asset Management (AM). Its wholesale business comprises the Investment Bank, Commercial Banking, TSS and Asset & Wealth Management. Its consumer business comprises RFS and CS. It also has a corporate segment, which includes Private Equity, Treasury and Corporate operations. In February 2009, the Company acquired UBS Commodities Canada Ltd. and UBS AG’s global agricultural business.

ModernGraham Comments: None at this time.

Defensive and Enterprising Investor Tests:

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
6. Moderate PEmg ratio – PEmg is less than 20 – PASS
7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests: Score = 3/5

1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
3. Earnings Stability – positive earnings per share for at least 5 years – PASS
4. Dividend Record – currently pays a dividend – PASS
5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary:

• Last Updated    11/2/2009
• MG Value    $36
• MG Opinion    Overvalued
• Value Based on 3% Growth    $35
• Value Based on 0% Growth    $20
• Market Implied Growth Rate    4.47%
• PEmg    17.45
• PB Ratio    1.01

Key Data:

Balance Sheet – 9/30/2009

• Total Debt    $289,983,000,000
• Total Assets    $2,041,009,000,000
• Intangible Assets    $18,525,000,000
• Goodwill    $48,334,000,000
• Total Liabilities    $1,878,756,000,000
• Outstanding Shares    3,938,700,000

Earnings Per Share – Diluted

• 2009 (estimate)    $1.89
• 2008    $0.84
• 2007    $4.38
• 2006    $3.82
• 2005    $2.32
• 2004    $1.45
• 2003    $3.24
• 2002    $0.80
• 2001    $0.82
• 2000    $2.86
• 1999    $3.69

Earnings Per Share – Modern Graham

• 2009 (estimate)    $2.39
• 2008    $2.62
• 2007    $3.35
• 2006    $2.67
• 2005    $1.97
• 2004    $1.81

Valuation History:

• 11/2/09 – Value $36, Actual Price $41.77, Overvalued & Defensive
• 7/25/09 – Value $24, Actual Price $37.92, Overvalued & Defensive