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Why Q4 Earnings Should Supplement JPMorgan's (JPM) Rally
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Shares of JPMorgan Chase & Co. (JPM - Free Report) , which flew to an all-time high of $87.76 last week thanks to Trump’s win and a bump up in rates, are likely to get another boost from the company’s fourth-quarter earnings release on Jan 13. Factors that drove the third-quarter earnings beat, including strong trading activities, lower expenses and loan growth, also favored the about-to-be-reported quarter. So it’s not unreasonable to expect impressive earnings in the upcoming release.
While the current price makes the valuation stretched, the stock has a great Momentum Score of 'A', putting it in the top 20% for this investment strategy. Perhaps, the earnings score will help to keep the momentum alive.
Tepid demand for loans from corporates and a not-so-favorable interest rate environment could curb earnings growth to some extent. Then again, a stronger core business and the absence of any significant legal costs should be enough to counter the headwinds.
This optimism is clearly reflected in the earnings estimate revisions. The Zacks Consensus Estimate for the about-to-be-reported quarter has been revised upward over the last 60 days to $1.42 with eight estimates moving higher and just one moving lower.
Increasing earnings estimates dim the chance of a beat, but indicate an improvement after all. The Zacks Consensus Estimate reflects a year-over-year improvement of 5.2%.
Our quantitative model doesn’t point to an earnings beat though. Here’s why:
JPMorgan doesn’t have the right combination of the two key ingredients – positive Earnings ESP and a Zacks Rank #3 (Hold) or better – for increasing the odds of an earnings beat.
Zacks ESP: The Earnings ESP for JPMorgan is 0.00%. This is because the Most Accurate estimate of $1.43 matches the Zacks Consensus Estimate.
Zacks Rank: JPMorgan carries a Zacks Rank #2 (Buy), but this alone isn’t enough to increase the chance of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Looking at the fundamentals, here are the factors that should be at play:
Trading revenues are likely to be strong: As trading activity has picked up following the Presidential election, trading revenues are likely show a decent improvement. CEO Jamie Dimon mentioned last month that the company expects 15% growth in trading revenues stemming primarily from higher fixed-income trading. Trading in equities should not be disappointing either.
No major improvement in investment banking revenues: As the fourth quarter is seasonally weak for investment banking, results may not get significant support from this division. JPMorgan’s revenues from advisory and underwriting are not likely to witness any significant improvement, as M&A activities and IPOs continued to decline during the quarter in the wake of global economic concerns.
Mortgage revenues likely to remain steady: JPMorgan might have generated flat mortgage revenues in the quarter despite it being seasonally weak for the business, as people may have rushed to get homes financed before the Fed’s rate hike last month. However, unlike Wells Fargo and U.S. Bancorp, JPMorgan hasn’t bulked up its mortgage banking businesses since the last recession, so the contribution of mortgage revenue gains to total revenues will not be extraordinary.
Loan growth to boost net interest income: While the latest hike in interest rates may not get reflected in Q4 results, a robust improvement in loan volume might have propelled the growth of net interest income. Expanding loans was one of the major ways to dodge margin pressure caused by the low rate environment in the last few quarters.
No major setback related to energy sector lending: While energy loans still pose as concerns, the provision requirement should not be as high as it was in the beginning of the year, thanks to the recovery in oil prices.
Expense reduction may not be a major earnings driver: JPMorgan continued with its efforts to keep expenses at check. Moreover, there were no major outflows related to legal settlements that might impact the firm’s earnings unusually in the to-be-reported quarter. But high card acquisition costs will not let overall expenses to decline considerably.
Stocks That Warrant a Look
Here are a few bank stocks that you may want to consider, as our model shows that these have the right combination for an earnings beat this time around:
Fifth Third Bancorp (FITB - Free Report) has an Earnings ESP of +2.33% and carries a Zacks Rank #2. The company is scheduled to release results on Jan 24.
KeyCorp (KEY - Free Report) has an Earnings ESP of +6.90% and carries a Zacks Rank #2. It is scheduled to report results on Jan 19.
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In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>
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Why Q4 Earnings Should Supplement JPMorgan's (JPM) Rally
Shares of JPMorgan Chase & Co. (JPM - Free Report) , which flew to an all-time high of $87.76 last week thanks to Trump’s win and a bump up in rates, are likely to get another boost from the company’s fourth-quarter earnings release on Jan 13. Factors that drove the third-quarter earnings beat, including strong trading activities, lower expenses and loan growth, also favored the about-to-be-reported quarter. So it’s not unreasonable to expect impressive earnings in the upcoming release.
While the current price makes the valuation stretched, the stock has a great Momentum Score of 'A', putting it in the top 20% for this investment strategy. Perhaps, the earnings score will help to keep the momentum alive.
Tepid demand for loans from corporates and a not-so-favorable interest rate environment could curb earnings growth to some extent. Then again, a stronger core business and the absence of any significant legal costs should be enough to counter the headwinds.
This optimism is clearly reflected in the earnings estimate revisions. The Zacks Consensus Estimate for the about-to-be-reported quarter has been revised upward over the last 60 days to $1.42 with eight estimates moving higher and just one moving lower.
Increasing earnings estimates dim the chance of a beat, but indicate an improvement after all. The Zacks Consensus Estimate reflects a year-over-year improvement of 5.2%.
Our quantitative model doesn’t point to an earnings beat though. Here’s why:
JPMorgan doesn’t have the right combination of the two key ingredients – positive Earnings ESP and a Zacks Rank #3 (Hold) or better – for increasing the odds of an earnings beat.
Zacks ESP: The Earnings ESP for JPMorgan is 0.00%. This is because the Most Accurate estimate of $1.43 matches the Zacks Consensus Estimate.
Zacks Rank: JPMorgan carries a Zacks Rank #2 (Buy), but this alone isn’t enough to increase the chance of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
J P Morgan Chase & Co Price and EPS Surprise
J P Morgan Chase & Co Price and EPS Surprise | J P Morgan Chase & Co Quote
Looking at the fundamentals, here are the factors that should be at play:
Trading revenues are likely to be strong: As trading activity has picked up following the Presidential election, trading revenues are likely show a decent improvement. CEO Jamie Dimon mentioned last month that the company expects 15% growth in trading revenues stemming primarily from higher fixed-income trading. Trading in equities should not be disappointing either.
No major improvement in investment banking revenues: As the fourth quarter is seasonally weak for investment banking, results may not get significant support from this division. JPMorgan’s revenues from advisory and underwriting are not likely to witness any significant improvement, as M&A activities and IPOs continued to decline during the quarter in the wake of global economic concerns.
Mortgage revenues likely to remain steady: JPMorgan might have generated flat mortgage revenues in the quarter despite it being seasonally weak for the business, as people may have rushed to get homes financed before the Fed’s rate hike last month. However, unlike Wells Fargo and U.S. Bancorp, JPMorgan hasn’t bulked up its mortgage banking businesses since the last recession, so the contribution of mortgage revenue gains to total revenues will not be extraordinary.
Loan growth to boost net interest income: While the latest hike in interest rates may not get reflected in Q4 results, a robust improvement in loan volume might have propelled the growth of net interest income. Expanding loans was one of the major ways to dodge margin pressure caused by the low rate environment in the last few quarters.
No major setback related to energy sector lending: While energy loans still pose as concerns, the provision requirement should not be as high as it was in the beginning of the year, thanks to the recovery in oil prices.
Expense reduction may not be a major earnings driver: JPMorgan continued with its efforts to keep expenses at check. Moreover, there were no major outflows related to legal settlements that might impact the firm’s earnings unusually in the to-be-reported quarter. But high card acquisition costs will not let overall expenses to decline considerably.
Stocks That Warrant a Look
Here are a few bank stocks that you may want to consider, as our model shows that these have the right combination for an earnings beat this time around:
Citigroup Inc. (C - Free Report) , scheduled to report results on Jan 18, has an Earnings ESP of +1.79% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Fifth Third Bancorp (FITB - Free Report) has an Earnings ESP of +2.33% and carries a Zacks Rank #2. The company is scheduled to release results on Jan 24.
KeyCorp (KEY - Free Report) has an Earnings ESP of +6.90% and carries a Zacks Rank #2. It is scheduled to report results on Jan 19.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>