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JPMorgan Chase & Co. (JPM) Up 6.1% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for JPMorgan Chase & Co. (JPM - Free Report) . Shares have added about 6.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is JPMorgan Chase & Co. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
JPMorgan Q1 Earnings Beat on Reserve Release, Fee Income
Large reserve releases, along with solid capital markets performance, drove JPMorgan’s first-quarter 2021 earnings of $4.50 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.05.
Results included credit reserve releases and the contribution to the company’s foundation. Excluding these, earnings amounted to $3.31 per share. The company had earned 78 cents in the prior-year quarter.
During the quarter, the company reported credit reserve releases. In a statement, the CEO Jamie Dimon said, “These results include a benefit from credit reserve releases of $5.2 billion that we do not consider core or recurring profits. We believe our credit reserves of $26 billion are appropriate and prudent, all things considered.”
As expected, fixed income markets revenues increased 15%, driven by strong performance in securitized products and credit. Likewise, equity markets revenues surged 47% on the back of solid performance across products. Also, historically lower rates drove mortgage fees and related income to $704 million, soaring 120%.
Further, equity and debt underwriting fees surged 219% and 17%, respectively. Additionally, continued stellar deal making activities during the quarter led JPMorgan to record a 35% rise in advisory fees. Hence, investment banking fees jumped 57% from the prior-year quarter.
Among other positives, Asset & Wealth Management average loan balances grew 18% from the year-ago quarter. Credit card sales volume rose 3%.
However, low interest rates and soft loan demand hurt interest income. Also, operating expenses witnessed a rise. Further, Commercial Banking average loan balances were down 2% year over year.
Overall performance of JPMorgan’s business segments, in terms of net income generation, was decent. All segments reported an increase in net income on a year-over-year basis. However, the Corporate segment’s loss widened.
Net income increased substantially from the prior-year quarter to $14.3 billion.
Fee Income Aids Revenues, Costs Rise
Net revenues as reported were $32.3 billion, up 14% from the year-ago quarter. The improvement reflects higher trading, mortgage and investment banking fees, while lower interest rates were an offsetting factor. Also, the top line beat the Zacks Consensus Estimate of $30.1 billion.
Net interest income declined 11% year over year to $12.9 billion. Conversely, non-interest income surged 40% to $19.4 billion, mainly driven by mortgage banking, investment banking and principal transactions performance.
Non-interest expenses (on managed basis) were $18.7 billion, up 12% from the year-ago quarter. The rise was primarily due to higher volume- and revenue-related expenses, and continued investments in business.
Credit Quality: Mixed Bag
Provision for credit losses was a net benefit $4.2 billion against a provision of $8.3 billion in the prior-year quarter. Further, net charge-offs decreased 28% to $1.1 billion.
As of Mar 31, 2021, non-performing assets were $10.3 billion, which was up 45% from Mar 31, 2020 level.
Solid Capital Position
Tier 1 capital ratio (estimated) was 15.0% at first quarter-end compared with 13.3% on Mar 31, 2020. Tier 1 common equity capital ratio (estimated) was 13.1%, up from 11.5%. Total capital ratio was 17.2% (estimated) compared with 15.5% as of Mar 31, 2020.
Book value per share was $82.31 as of Mar 31, 2021 compared with $75.88 in the corresponding period of 2020. Tangible book value per common share was $66.56 at the end of March, up from $60.71.
Share Repurchase Update
During the quarter, JPMorgan repurchased shares worth $4.3 billion. It must be noted that the company resumed buybacks following approval for the same from the Federal Reserve in December 2020.
2021 Outlook
Management anticipates NII to be approximately $55 billion, down marginally from prior guidance of $55.5 billion. Nonetheless, this is up slightly from $54.6 billion in 2020. The rise is likely to be driven by steepening of the yield curve, higher markets NII, strong deposit growth and improvement in loan demand in the second half of the year, partially offset by lower rates.
On the cost front, the company expects expenses to be $70 billion, up from previous guidance of $68 billion. The year-over-year rise in expenses is largely due to “revenue and volume-related expenses” and the impact of foreign exchange as well as expenses related to the acquisition of cxLoyalty. Also, the bank plans to make investments worth $12.4 billion during the year, largely related to business expansions and technology upgrades.
Further, management expects meaningful increase in NCOs in the second half of 2021 and this could be even later with the recent stimulus. Also, card NCOs are projected to be almost 2.5%.
Second-Quarter 2021 Outlook
The company expects IB fees to be in line with the prior-year quarter, while the overall pipeline is likely to remain robust. Further, merger and acquisitions (M&As) and equity capital markets momentum are expected to continue.
Segment Outlook Under Normalized Environment
For CCB, ROE is projected to be nearly 25% and overhead ratio of 50-55%. Further, NCOs are likely to be higher in the second half of 2021 compared with the first half.
For CIB, ROE is expected to be approximately 16% and revenues roughly $43 billion, with overhead ratio of nearly 54%.
After recording impressive gross IB revenues of $3.3 billion in fourth-quarter 2020, management now expects the same to be $4 billion in the long-term. Further, the company maintained long-term target of $1 billion each for expansion in markets revenues and international revenues.
For CB, ROE is expected to be approximately 18% and overhead ratio of nearly 40%.
For AWM, revenue growth is expected to be 5% and both pre-tax margin as well as ROE of roughly 25%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
VGM Scores
Currently, JPMorgan Chase & Co. has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise JPMorgan Chase & Co. has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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JPMorgan Chase & Co. (JPM) Up 6.1% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for JPMorgan Chase & Co. (JPM - Free Report) . Shares have added about 6.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is JPMorgan Chase & Co. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
JPMorgan Q1 Earnings Beat on Reserve Release, Fee Income
Large reserve releases, along with solid capital markets performance, drove JPMorgan’s first-quarter 2021 earnings of $4.50 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.05.
Results included credit reserve releases and the contribution to the company’s foundation. Excluding these, earnings amounted to $3.31 per share. The company had earned 78 cents in the prior-year quarter.
During the quarter, the company reported credit reserve releases. In a statement, the CEO Jamie Dimon said, “These results include a benefit from credit reserve releases of $5.2 billion that we do not consider core or recurring profits. We believe our credit reserves of $26 billion are appropriate and prudent, all things considered.”
As expected, fixed income markets revenues increased 15%, driven by strong performance in securitized products and credit. Likewise, equity markets revenues surged 47% on the back of solid performance across products. Also, historically lower rates drove mortgage fees and related income to $704 million, soaring 120%.
Further, equity and debt underwriting fees surged 219% and 17%, respectively. Additionally, continued stellar deal making activities during the quarter led JPMorgan to record a 35% rise in advisory fees. Hence, investment banking fees jumped 57% from the prior-year quarter.
Among other positives, Asset & Wealth Management average loan balances grew 18% from the year-ago quarter. Credit card sales volume rose 3%.
However, low interest rates and soft loan demand hurt interest income. Also, operating expenses witnessed a rise. Further, Commercial Banking average loan balances were down 2% year over year.
Overall performance of JPMorgan’s business segments, in terms of net income generation, was decent. All segments reported an increase in net income on a year-over-year basis. However, the Corporate segment’s loss widened.
Net income increased substantially from the prior-year quarter to $14.3 billion.
Fee Income Aids Revenues, Costs Rise
Net revenues as reported were $32.3 billion, up 14% from the year-ago quarter. The improvement reflects higher trading, mortgage and investment banking fees, while lower interest rates were an offsetting factor. Also, the top line beat the Zacks Consensus Estimate of $30.1 billion.
Net interest income declined 11% year over year to $12.9 billion. Conversely, non-interest income surged 40% to $19.4 billion, mainly driven by mortgage banking, investment banking and principal transactions performance.
Non-interest expenses (on managed basis) were $18.7 billion, up 12% from the year-ago quarter. The rise was primarily due to higher volume- and revenue-related expenses, and continued investments in business.
Credit Quality: Mixed Bag
Provision for credit losses was a net benefit $4.2 billion against a provision of $8.3 billion in the prior-year quarter. Further, net charge-offs decreased 28% to $1.1 billion.
As of Mar 31, 2021, non-performing assets were $10.3 billion, which was up 45% from Mar 31, 2020 level.
Solid Capital Position
Tier 1 capital ratio (estimated) was 15.0% at first quarter-end compared with 13.3% on Mar 31, 2020. Tier 1 common equity capital ratio (estimated) was 13.1%, up from 11.5%. Total capital ratio was 17.2% (estimated) compared with 15.5% as of Mar 31, 2020.
Book value per share was $82.31 as of Mar 31, 2021 compared with $75.88 in the corresponding period of 2020. Tangible book value per common share was $66.56 at the end of March, up from $60.71.
Share Repurchase Update
During the quarter, JPMorgan repurchased shares worth $4.3 billion. It must be noted that the company resumed buybacks following approval for the same from the Federal Reserve in December 2020.
2021 Outlook
Management anticipates NII to be approximately $55 billion, down marginally from prior guidance of $55.5 billion. Nonetheless, this is up slightly from $54.6 billion in 2020. The rise is likely to be driven by steepening of the yield curve, higher markets NII, strong deposit growth and improvement in loan demand in the second half of the year, partially offset by lower rates.
On the cost front, the company expects expenses to be $70 billion, up from previous guidance of $68 billion. The year-over-year rise in expenses is largely due to “revenue and volume-related expenses” and the impact of foreign exchange as well as expenses related to the acquisition of cxLoyalty. Also, the bank plans to make investments worth $12.4 billion during the year, largely related to business expansions and technology upgrades.
Further, management expects meaningful increase in NCOs in the second half of 2021 and this could be even later with the recent stimulus. Also, card NCOs are projected to be almost 2.5%.
Second-Quarter 2021 Outlook
The company expects IB fees to be in line with the prior-year quarter, while the overall pipeline is likely to remain robust. Further, merger and acquisitions (M&As) and equity capital markets momentum are expected to continue.
Segment Outlook Under Normalized Environment
For CCB, ROE is projected to be nearly 25% and overhead ratio of 50-55%. Further, NCOs are likely to be higher in the second half of 2021 compared with the first half.
For CIB, ROE is expected to be approximately 16% and revenues roughly $43 billion, with overhead ratio of nearly 54%.
After recording impressive gross IB revenues of $3.3 billion in fourth-quarter 2020, management now expects the same to be $4 billion in the long-term. Further, the company maintained long-term target of $1 billion each for expansion in markets revenues and international revenues.
For CB, ROE is expected to be approximately 18% and overhead ratio of nearly 40%.
For AWM, revenue growth is expected to be 5% and both pre-tax margin as well as ROE of roughly 25%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
VGM Scores
Currently, JPMorgan Chase & Co. has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise JPMorgan Chase & Co. has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.