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transcript
Jonathan CarrollAran CrossYaofeng DongGarrod GibbScott Mann
August 18, 2003
FINANCIAL SECTOR FINANCIAL SECTOR COMPANY COMPANY
PRESENTATIONPRESENTATION
• Our Recommendation• Cut/Add
– Business Analysis– Financial Analysis– Valuation Analysis– Rationale
• Conclusion
OUTLINEOUTLINE
MAINTAIN WEIGHTMAINTAIN WEIGHT
1.21%
1.69%
3.22%
MAINTAIN WEIGHTMAINTAIN WEIGHT
4.52%
2.58%
5.62%
BUY/CUTBUY/CUT
1.46% 2.72%
1.26% 0%
Total Financials SIM Weight 21.55% 21.55%
• Global Financial Services Provider incorporated in 1968– Investment Banking– Treasury and Securities Services– Investment Management & Private
Banking– JP Morgan Partners– Chase Financial Services
• December 31, 2000 JP Morgan merged with Chase Manhattan Corporation
BUSINESS ANALYSISBUSINESS ANALYSIS
Income StatementJP MORGAN CHASE & COMPANY (JPM) StockVal ®
FYE Dec
2002 % Chg 2001 % Chg 2000 % Chg 1999 % Chg 1998 % Chg
Interest Income ($ Mil) 25284.0 -21 32181.0 -12 36643.0 17 31207.0 -11 34930.0 2
Interest Expense 13758.0 -36 21379.0 -21 27131.0 30 20922.0 -17 25083.0 4
Net Interest Income 11526.0 7 10802.0 14 9512.0 -8 10285.0 4 9847.0 -3
Provision For Loan Losses 4331.0 36 3182.0 131 1380.0 -5 1446.0 0 1453.0 81
Other Income 18088.0 -2 18542.0 -22 23674.0 15 20645.0 30 15906.0 14
Other Expense 22764.0 -4 23596.0 2 23073.0 28 17995.0 6 16953.0 12
Pre-Tax Income 2519.0 -2 2566.0 -71 8733.0 -24 11489.0 56 7347.0 -9
Taxes 856.0 1 847.0 -72 3006.0 -25 3988.0 53 2602.0 -10
Net Income Reported ($ Mil) 1663.0 -2 1694.0 -70 5727.0 -24 7501.0 58 4745.0 -8
Net Income Adjusted 3384.0 -11 3802.0 -38 6179.0 -17 7430.0 46 5081.0 -4
EPS Reported 0.80 0 0.80 -72 2.86 -22 3.69 63 2.27 -6
EPS Adjusted 1.66 -10 1.85 -40 3.09 -15 3.65 50 2.43 -2
Shares Outstanding (Thou) 2009100 -1 2023600 3 1969000 -2 2004865 -1 2033627 -1
Dividends Common (Per Shr) 1.36 0 1.36 6 1.28 19 1.08 13 0.96 16
Dividends Preferred ($ Mil) 51.0 -23 66.0 -31 96.0 -9 106.0 -20 133.0 -39
Net Interest Income TEB 11604.0 7 10886.0 13 9596.0 -8 10381.0 4 9947.0
FINANCIAL ANALYSIS – Income FINANCIAL ANALYSIS – Income StatementStatement
FINANCIAL ANALYSIS – DuPont FINANCIAL ANALYSIS – DuPont AnalysisAnalysis
DuPont AnalyticsJP MORGAN CHASE & COMPANY (JPM) StockVal ®
Price 33.660 08/15/03 FYE Dec INT TAX ASSET
MARGIN% BURDEN BURDEN% TURN LEVERAGE
EBIT EBT T Sales Assets
------- ------- 1 - ---- ------- ------- ROE Acct ROE
Sales EBIT EBT Assets Equity Rpt% Adj% Adj%
2002 0.15 66.02 17.85 4.09 4.23 8.32
2001 0.11 66.99 17.41 4.19 5.21 9.40
2000 0.24 65.58 18.62 15.43 1.21 16.64
1999 0.35 65.29 19.37 22.45 -0.21 22.24
1998 0.23 64.58 19.58 14.81 1.05 15.86
1997 0.25 64.15 19.83 17.30 0.42 17.72
1996 0.23 65.68 18.30 14.10 4.31 18.41
1995 0.26 63.50 29.22
1994 0.27 63.96 29.51
1993 69.12 24.15
1992 73.15 25.87
FINANCIAL ANALYSIS – ValuationFINANCIAL ANALYSIS – Valuation
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
JP MORGAN CHASE & COMPANY (JPM)PRICE 33.7 DATE 08-15-2003StockVal®
1010
1212
1414
16161818
2222
2626
30303434
4040
4848
5656
64
76
88
The Ohio State UniversityFisher College of Business
Price Change % Diff SP51-Week 2.03 0.694-Weeks -4.73 -4.46QTD -1.52 -3.18YTD 40.25 27.652002 -33.98 -10.612001 -20.00 -6.962000 -12.27 -2.131999 9.42 -10.11 FYE Dec 2002 EPS 1.67
First Call Data 2003 2004 2005Mean Estimate 2.94 3.04 NEChange +76% +3%High 3.15 3.70Low 2.75 2.52Total 14 14 # Up 12 12 # Down 1 1 House Estimate
PE Ratio 11.4 11.1 NE
Revenues ($Mil)Market Value ($Mil) 69,023Shares Out (Mil) 2,050.6Daily Volume (Thou) 9,643Daily Volume ($Mil) 324.6Dividend Estimate 1.36Payout Ratio 46%Retention Rate 54%
Dividend Yield 4.04%
Data Page # 1
FINANCIAL ANALYSIS – ValuationFINANCIAL ANALYSIS – Valuation
StockVal®JP MORGAN CHASE & COMPANY (JPM) Price 33.71993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
PRICE / YR-FORWARD EPS ESTS RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd0.40
0.45
0.50
0.55
0.60
0.65
0.70
0.75
0.80
HI 0.80 LO 0.42 ME 0.59 CU 0.66
08-13-199308-15-2003
RETURN ON EQUITY RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
HI 1.14 LO 0.50 ME 0.88 CU 0.64
12-31-199506-30-2003
P/E, ROE Relative to S&P 500
FINANCIAL ANALYSIS – FINANCIAL ANALYSIS – P/E, ROE Relative to Sector
StockVal®JP MORGAN CHASE & COMPANY (JPM) Price 33.71993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
PRICE / YR-FORWARD EPS ESTS RELATIVE TO S&P FINANCIALS SECTOR COMPOSITE ADJ (SP-40) M-Wtd0.60
0.66
0.72
0.78
0.84
0.90
0.96
1.02
1.08
1.14
HI 1.09 LO 0.62 ME 0.82 CU 0.91
08-13-199308-15-2003
RETURN ON EQUITY RELATIVE TO S&P FINANCIALS SECTOR COMPOSITE ADJ (SP-40) M-Wtd0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
HI 1.18 LO 0.46 ME 0.97 CU 0.63
12-31-199506-30-2003
• ROE significantly below sector, S&P 500 average
• Valuation high compared to sector, S&P 500 average
• Litigation over Analyst Recommendations
• Declining growth rate• Low expectations for refinancing• Poor indicators
RATIONALERATIONALE
Insider Transactions
Transaction Summary Total insider purchases and sales reported to the SEC.
# of
# of
Shares
Shares
Change in
Buys Sells Bought Sold Net Shares
Last 3 months 0 2 0 105,599 -105,599
Last 6 months 0 5 0 123,299 -123,299
Last 12 months 0 6 0 160,299 -160,299
Indicators
Current Assets* 18.90%
PP&E 8.53%
Goodwill -2.88%
Liabilities 9.90%
Common stock 1.35%
* estimate of current assets
• Diversified Financial Services • Holding company incorporated in
1995– Capital One Bank– Capital One FSB– Capital One Services Inc. etc.
• Subsidiaries market financial products and services to consumers– Primary business is consumer lending
with focus on credit card lending – One of top six credit card issuers
BUSINESS ANALYSISBUSINESS ANALYSIS
• Corporate Strategy– Targeting specific consumer segments– Tailoring products meet specific consumer needs– Using an information technology based strategy
(IBS) to leverage proprietary information– Heavy investment in marketing– Take all levels of risk and price accordingly
• Higher risk borrowers tend to be more likely to pay late or exceed their credit limit, which generally results in additional fees assessed to their accounts.
BUSINESS ANALYSISBUSINESS ANALYSIS
STOCK PRICESTOCK PRICE
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
CAPITAL ONE FINANCIAL CORPORATION (COF)PRICE 49.8 DATE 08-15-2003StockVal®
33
44
55
77
991111
1515
1919
2525
3232
4242
5555
72
94
122
The Ohio State UniversityFisher College of Business
Price Change % Diff SP51-Week 4.08 2.744-Weeks 1.63 1.90QTD 1.18 -0.48YTD 67.43 54.832002 -44.91 -21.552001 -18.02 -4.982000 36.57 46.711999 25.71 6.18 FYE Dec 2002 EPS 3.93
First Call Data 2003 2004 2005Mean Estimate 4.64 5.20 NEChange +18% +12%High 4.81 5.50Low 4.50 4.69Total 27 27 # Up 15 8 # Down 11 12 House Estimate
PE Ratio 10.7 9.6 NE
Revenues ($Mil)Market Value ($Mil) 11,574Shares Out (Mil) 232.6Daily Volume (Thou) 3,745Daily Volume ($Mil) 186.4Dividend Estimate 0.11Payout Ratio 2%Retention Rate 98%
Dividend Yield 0.22%
Data Page # 1
FINANCIAL – Income StatementFINANCIAL – Income Statement
FINANCIAL – Balance SheetFINANCIAL – Balance Sheet
FINANCIAL – Cash FlowFINANCIAL – Cash Flow
• Total cash down 55% as a function of increased loans• Operating Cash increased by 64% - bringing in more
interest and fee income
26.07%27.01%24.29%22.64%ROE
29.70%28.70%25.70%25.80%Asset Turnover
24.71%22.63%21.58%21.44%Operating Margin
1999200020012002
8.179.278.918.25Leverage
1.832.393.053.93EPS
FINANCIAL ANALYSIS – Dupont FINANCIAL ANALYSIS – Dupont AnalysisAnalysis
• MBNA: ROE 19.6%; Margin 17.2%; Asset Turn 20%; Leverage 5.8%
• AMX: ROE 19.5%; Margin 11.4%; Asset Turn 20%; Leverage 10.9%
Delinquency RateDelinquency Rate
StockVal®
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
DELINQUENCY RATES:CONS LNS:ALL,SA YTY % CHANGE-21
-18
-15
-12
-9
-6
-3
0
3
6
9
12
15
18
21
HI 20.6 LO -18.6 ME 0.0 CU -5.3
09-30-199303-31-2003
Price/ROE/EPS/GRE Relative to S&P)FINANCIAL ANALYSIS – FINANCIAL ANALYSIS –
StockVal®CAPITAL ONE FINANCIAL CORPORATION (COF) Price 49.81993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
PRICE RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd0.6
1.0
1.7
2.9
4.9HI 4.65 LO 0.88 ME 2.52 CU 3.82
11-18-199408-15-2003
RETURN ON EQUITY RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd1
2
3
4
5HI 4.16 LO 1.17 ME 1.36 CU 1.47
09-30-199306-30-2003
EARNINGS RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd1.0
1.6
2.5
3.9
6.0 HI 5.40 LO 1.00 ME 1.74 CU 5.40 FY1 4.92 FY2 4.88 09-30-199306-30-2003
GROWTH RATE ESTIMATE RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd0.0
0.5
1.0
1.5
2.0HI 1.63 LO 0.00 ME 1.35 CU 1.42
01-06-199508-15-2003
Price/ROE/EPS/GRE Relative to Financial SectorFINANCIAL ANALYSIS – FINANCIAL ANALYSIS –
StockVal®CAPITAL ONE FINANCIAL CORPORATION (COF) Price 49.81993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
PRICE RELATIVE TO S&P FINANCIALS SECTOR COMPOSITE ADJ (SP-40) M-Wtd0.7
1.0
1.5
2.2
3.3HI 3.15 LO 0.76 ME 1.98 CU 2.46
11-18-199408-15-2003
RETURN ON EQUITY RELATIVE TO S&P FINANCIALS SECTOR COMPOSITE ADJ (SP-40) M-Wtd1
2
3
4
5HI 4.31 LO 1.29 ME 1.46 CU 1.43
09-30-199306-30-2003
EARNINGS RELATIVE TO S&P FINANCIALS SECTOR COMPOSITE ADJ (SP-40) M-Wtd1.0
1.5
2.2
3.2
4.7 HI 4.39 LO 1.00 ME 1.68 CU 4.39 FY1 3.98 FY2 4.02 09-30-199306-30-2003
GROWTH RATE ESTIMATE RELATIVE TO S&P FINANCIALS SECTOR COMPOSITE ADJ (SP-40) M-Wtd0.0
0.5
1.0
1.5
2.0HI 1.95 LO 0.00 ME 1.65 CU 1.46
01-06-199508-15-2003
• 45.8 million managed accounts and $60.7 billion in managed loans outstanding
• 35 consecutive quarterly dividend (2 2/3 cents)
• Highlights from 2Q earnings announcement:– Profit up 34%, to $1.23 per share from $.92 per
share a year ago, beating the consensus by $.13 a share
– Net charge-off rate for bad debts fell to 6.32% from 6.47% a year ago
– Risk-adjusted revenue margin declined to 9.23% from 12.53% a year ago
RATIONALERATIONALE
• 3 Catalysts:– Improving delinquency rates– Consumer credit spending should
increase as economy improves– Bullish on the chart
RATIONALERATIONALE
RATIONALERATIONALE
RecommendationsRecommendations
1.46% 2.72%
1.26% 0%
Total Financials SIM Weight 21.55% 21.55%
QUESTIONSQUESTIONS