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Rates to Aid JPMorgan (JPM) Q1 Earnings, Weak Trading to Hurt
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JPMorgan (JPM - Free Report) , slated to kick-start first-quarter 2024 earnings with other major industry players on Friday, Apr 12, is likely to have witnessed modest gains from high interest rates. As the Federal Reserve kept the interest rates steady during the quarter (at a 22-year high of 5.25-5.5%), the company is less likely to have recorded significant improvement in net interest income (NII).
Also, the inverted yield curve in the March-ended quarter and high funding costs are expected to have weighed on NII.
However, the stabilizing macroeconomic backdrop, along with the expectations of Fed easing going forward, is likely to have offered some support to the lending scenario during the quarter. Per the Fed’s latest data, the demand for commercial and industrial, real estate and consumer loans was decent in the first two months of the quarter.
The Zacks Consensus Estimate for JPMorgan’s average earning assets is pegged at $3.39 trillion, indicating a 5.5% rise from the year-ago reported number. Our estimate for the metric is $3.35 trillion.
The Zacks Consensus Estimate for NII (reported) of $23.5 billion suggests a 13.5% increase. Our estimate for NII implies a rise of 15.7% to $24 billion.
Other Major Factors to Impact Q1 Results
Markets Revenues: Client activity was decent in the first quarter. The expectations of a soft landing of the U.S. economy, gradually cooling inflation and clarity on the Fed rate path drove the client activity.
Nonetheless, volatility was lower in equity markets and other asset classes, including commodities, bonds and foreign exchange. So, JPMorgan is likely to have recorded subdued markets revenues (comprising nearly 20% of the company’s total revenues) this time.
Also, tougher comps from the prior year are expected to have weighed on JPM’s year-over-year performance. The consensus estimate for equity markets revenues of $2.73 billion suggests a 1.6% rise on solid equity market performance during the quarter. The Zacks Consensus Estimate for fixed-income markets revenues of $4.95 billion indicates a 13.1% decline.
Our estimates for equity markets revenues and fixed-income markets revenues stand at $2.74 billion and $4.84 billion, respectively.
Management expects markets revenues to increase sequentially in the first quarter of 2024, driven by normal seasonality, while on a year-over-year basis, the metric is projected to decline 5-10%.
Investment Banking (IB) Fees: Global mergers and acquisitions (M&As) bounced back in the first quarter of 2024 after subdued 2023 and 2022. Both deal value and volume witnessed a remarkable comeback driven by solid financial performances, fading recession risks, buoyant markets and expected rate cuts this year. Yet, tough scrutiny by antitrust regulators and lingering geopolitical tensions continue to act as headwinds. JPMorgan’s leadership in the space is also likely to have offered some support to advisory fees.
Likewise, the IPO market activity was decent in the first quarter on the back of impressive equity market performance. This also drove some activity in follow-up equity issuances. Further, bond issuance volume was boosted by lower yields and a better operating backdrop compared with the last year. Thus, JPMorgan’s underwriting fees (accounting for almost 60% of total IB fees) are expected to have been decent during the to-be-reported quarter.
The consensus estimate for IB revenues (in the Corporate & Investment Banking segment) is pegged at $1.85 billion, suggesting a jump of 18.6%. Our estimate for the metric stands at $1.77 billion.
Management expects IB revenues to rise by a percentage in the low-to-mid teens on a year-over-year basis.
Mortgage Banking Fees: Though the mortgage rate has declined from its peak of more than 8%, it is still considerably high at nearly 7%. Though the central bank has signaled a 75-basis point cut in rates this year, the demand for mortgage didn’t improve much in the first quarter of 2024.
Given the home price appreciation and lower supply, mortgage origination volume continued to be weak too. Yet, supported by lower rates, there was a rise in refinancing activities. This is likely to have aided JPMorgan’s mortgage banking income.
The consensus estimate for mortgage fees and related income of $255.9 million implies a 15.8% jump from the prior-year quarter. Our estimate for the metric stands at $251 million.
Expenses: JPMorgan’s plan of entering new markets by opening branches, which is already on track, along with inorganic expansion efforts, is likely to have resulted in an increase in operating expenses in the first quarter. Also, investments in technology to strengthen digital offerings might have led to a rise in costs.
Our estimate for non-interest expenses stands at $21.5 billion, implying an increase of 6.8% on a year-over-year basis.
Asset Quality: JPMorgan is expected to have set aside a substantial amount of money for potential bad loans (mainly commercial loan defaults), given an uncertain macroeconomic outlook. Our estimate for provision for credit losses is pegged at $2.25 billion.
The Zacks Consensus Estimate for non-performing loans (NPLs) of $6.78 billion implies a 1.6% decrease year over year. The consensus estimate for non-performing assets (NPAs) of $7.66 suggests a 3.3% rise. Our estimates for NPAs and NPLs are pegged at $7.79 billion and $6.91 billion, respectively.
What the Zacks Model Reveals
Our proven model does not conclusively predict an earnings beat for JPMorgan this time are low. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for JPMorgan is -0.21%.
The Zacks Consensus Estimate for first-quarter earnings has been revised marginally lower to $4.20 over the past seven days. The estimated number indicates a rise of 2.4% from the year-ago reported number. Our estimate for earnings stands at $4.16.
Also, the consensus estimate for sales of $40.79 billion suggests a 6.4% year-over-year rise. Our estimate for sales is pegged at $39.77 billion, up 3.7%.
Major Banks Worth a Look
Here are a couple of major bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time:
The Earnings ESP for PNC Financial Services (PNC - Free Report) is +2.05% and it carries a Zacks Rank #3 at present. The company is slated to report first-quarter 2024 results on Apr 16.
Over the past seven days, the Zacks Consensus Estimate for PNC’s quarterly earnings has moved almost 1% north to $3.09.
Image: Bigstock
Rates to Aid JPMorgan (JPM) Q1 Earnings, Weak Trading to Hurt
JPMorgan (JPM - Free Report) , slated to kick-start first-quarter 2024 earnings with other major industry players on Friday, Apr 12, is likely to have witnessed modest gains from high interest rates. As the Federal Reserve kept the interest rates steady during the quarter (at a 22-year high of 5.25-5.5%), the company is less likely to have recorded significant improvement in net interest income (NII).
Also, the inverted yield curve in the March-ended quarter and high funding costs are expected to have weighed on NII.
However, the stabilizing macroeconomic backdrop, along with the expectations of Fed easing going forward, is likely to have offered some support to the lending scenario during the quarter. Per the Fed’s latest data, the demand for commercial and industrial, real estate and consumer loans was decent in the first two months of the quarter.
The Zacks Consensus Estimate for JPMorgan’s average earning assets is pegged at $3.39 trillion, indicating a 5.5% rise from the year-ago reported number. Our estimate for the metric is $3.35 trillion.
The Zacks Consensus Estimate for NII (reported) of $23.5 billion suggests a 13.5% increase. Our estimate for NII implies a rise of 15.7% to $24 billion.
Other Major Factors to Impact Q1 Results
Markets Revenues: Client activity was decent in the first quarter. The expectations of a soft landing of the U.S. economy, gradually cooling inflation and clarity on the Fed rate path drove the client activity.
Nonetheless, volatility was lower in equity markets and other asset classes, including commodities, bonds and foreign exchange. So, JPMorgan is likely to have recorded subdued markets revenues (comprising nearly 20% of the company’s total revenues) this time.
Also, tougher comps from the prior year are expected to have weighed on JPM’s year-over-year performance. The consensus estimate for equity markets revenues of $2.73 billion suggests a 1.6% rise on solid equity market performance during the quarter. The Zacks Consensus Estimate for fixed-income markets revenues of $4.95 billion indicates a 13.1% decline.
Our estimates for equity markets revenues and fixed-income markets revenues stand at $2.74 billion and $4.84 billion, respectively.
Management expects markets revenues to increase sequentially in the first quarter of 2024, driven by normal seasonality, while on a year-over-year basis, the metric is projected to decline 5-10%.
Investment Banking (IB) Fees: Global mergers and acquisitions (M&As) bounced back in the first quarter of 2024 after subdued 2023 and 2022. Both deal value and volume witnessed a remarkable comeback driven by solid financial performances, fading recession risks, buoyant markets and expected rate cuts this year. Yet, tough scrutiny by antitrust regulators and lingering geopolitical tensions continue to act as headwinds. JPMorgan’s leadership in the space is also likely to have offered some support to advisory fees.
Likewise, the IPO market activity was decent in the first quarter on the back of impressive equity market performance. This also drove some activity in follow-up equity issuances. Further, bond issuance volume was boosted by lower yields and a better operating backdrop compared with the last year. Thus, JPMorgan’s underwriting fees (accounting for almost 60% of total IB fees) are expected to have been decent during the to-be-reported quarter.
The consensus estimate for IB revenues (in the Corporate & Investment Banking segment) is pegged at $1.85 billion, suggesting a jump of 18.6%. Our estimate for the metric stands at $1.77 billion.
Management expects IB revenues to rise by a percentage in the low-to-mid teens on a year-over-year basis.
Mortgage Banking Fees: Though the mortgage rate has declined from its peak of more than 8%, it is still considerably high at nearly 7%. Though the central bank has signaled a 75-basis point cut in rates this year, the demand for mortgage didn’t improve much in the first quarter of 2024.
Given the home price appreciation and lower supply, mortgage origination volume continued to be weak too. Yet, supported by lower rates, there was a rise in refinancing activities. This is likely to have aided JPMorgan’s mortgage banking income.
The consensus estimate for mortgage fees and related income of $255.9 million implies a 15.8% jump from the prior-year quarter. Our estimate for the metric stands at $251 million.
Expenses: JPMorgan’s plan of entering new markets by opening branches, which is already on track, along with inorganic expansion efforts, is likely to have resulted in an increase in operating expenses in the first quarter. Also, investments in technology to strengthen digital offerings might have led to a rise in costs.
Our estimate for non-interest expenses stands at $21.5 billion, implying an increase of 6.8% on a year-over-year basis.
Asset Quality: JPMorgan is expected to have set aside a substantial amount of money for potential bad loans (mainly commercial loan defaults), given an uncertain macroeconomic outlook. Our estimate for provision for credit losses is pegged at $2.25 billion.
The Zacks Consensus Estimate for non-performing loans (NPLs) of $6.78 billion implies a 1.6% decrease year over year. The consensus estimate for non-performing assets (NPAs) of $7.66 suggests a 3.3% rise. Our estimates for NPAs and NPLs are pegged at $7.79 billion and $6.91 billion, respectively.
What the Zacks Model Reveals
Our proven model does not conclusively predict an earnings beat for JPMorgan this time are low. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for JPMorgan is -0.21%.
JPMorgan Chase & Co. Price and EPS Surprise
JPMorgan Chase & Co. price-eps-surprise | JPMorgan Chase & Co. Quote
Zacks Rank: It currently carries a Zacks Rank #3.
The Zacks Consensus Estimate for first-quarter earnings has been revised marginally lower to $4.20 over the past seven days. The estimated number indicates a rise of 2.4% from the year-ago reported number. Our estimate for earnings stands at $4.16.
Also, the consensus estimate for sales of $40.79 billion suggests a 6.4% year-over-year rise. Our estimate for sales is pegged at $39.77 billion, up 3.7%.
Major Banks Worth a Look
Here are a couple of major bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time:
The Earnings ESP for PNC Financial Services (PNC - Free Report) is +2.05% and it carries a Zacks Rank #3 at present. The company is slated to report first-quarter 2024 results on Apr 16.
Over the past seven days, the Zacks Consensus Estimate for PNC’s quarterly earnings has moved almost 1% north to $3.09.
Truist Financial (TFC - Free Report) is scheduled to release first-quarter 2024 earnings on Apr 22. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +0.57%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
TFC’s quarterly earnings estimates have remained unchanged at 78 cents over the past week.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.