How Dangerous Is JP Morgan's Energy Exposure?

JPMorgan Chase JPM outlined a tough-looking early 2016 in its Investor Day event Tuesday, but analysts dismissed potential problems like the company's massive energy exposure and persistently low interest rates in the face of the company's solid long-term fundamentals.

Oil & Gas Loan Exposure Leads To Loss

During the event, CFO Marianne Lake indicated that the company expects to incur a first-quarter loan loss reserve build for its oil & gas loan exposure of $500 million.

Some firms lowered their earnings estimates, but analyst consensus was that the J.P. Morgan would continue to do well in the long-term.

Keefe analyst Christopher Mutascio gave the company an Outperform rating, but dropped his price target from $74 to $72. He lowered his 2016 and 2017 earnings estimates from $5.95 and $6.45 to $5.60 and $6.25, respectively. Mutascio analyzed a "stress scenario" J.P. Morgan outlined in which oil remains at $25 a barrel for 18 months.

This situation would necessitate an extra $880 million in reserve build than Keefe's current estimate, and Mutascio predicted the scenario would cost the company $0.15 in earnings.

Barclays' Jason Goldberg offered an Overweight rating and price target of $79. He knocked his 2016 and 2017 EPS estimates down a quarter, from $6.20 to $5.95 in 2016 and from $6.65 to $6.40 in 2017. "We believe JPM's valuation more than discounts near-term headwinds and doesn't reflect a deserved premium given its growth opportunities, strategic positioning, and risk profile," Goldberg wrote.

Story Still There

Macquarie's David Konrad was clipped on J.P. Morgan, noting that despite a "rough start" to the year, "The JPM story is still intact. The company continues to invest for future growth while currently outperforming the industry in terms of loan growth."

Jefferies analyst Ken Usdin offered a Buy rating and dropped his price target from $71 to $67. Usdin had a similar outlook, noting "JPM laid out a tough outlook for early-'16," but "JPM's scale and premier positioning should deliver better growth in better times."

Investors may have been preoccupied with J.P.'s short-term outlook and the energy market, as shares were down 1.5 percent Wednesday afternoon.