Can J.P. Morgan Make $29 Billion in Earnings?

Najarian also said that $27 billion in earnings is just the starting point. She said:

To us, the most surprising takeaway from JPMorgan’s Investor Day was not in the slide deck or from management color. Rather, it was the market’s desire to read negatively into JPMorgan’s targets. It appears that the crux of the bear case centers on its 4 to 5 year net income simulation of $27 billion, or $7.11 on today’s share count.

Merrill Lynch’s target is already at $7.00 in earnings per share for 2016, but that is with no short rate increase built in. While the firm can see why this would be disappointing, the belief is that the market misinterpreted this number — as it does not assume loan growth or fee growth in a continued economic recovery.

Then the bottom-up analysis conservatively suggests $29 billion in normal net income. Najarian believes this is compelling, when you consider the current $220 billion in market capitalization. She went on to say:

This is $7.75 in earnings per share on the current share count, and $9.00 (per share) if we assume that JPMorgan can shrink its share count (net of issuances) by 15% over the next 4 years.

Najarian’s Buy rating is not even predicated on this $29 billion in earnings. She thinks that the market will refocus J.P. Morgan’s earnings power after the ongoing litigation and regulatory overhang subside. She concludes:

Without an increase in short rates, we think JPM can earn $7.00 by 2016. As such, at $58, in our view JPM appears undervalued on current earnings per share power.

The $68 price target compares to a recent close of $58.16, and then there is also that 2.7% dividend yield to boot. The consensus price target is closer to $65.50.