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Why Is JPMorgan (JPM) Up 7.9% Since the Last Earnings Report?
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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 nearly 8% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
JPMorgan Beats Q4 Earnings on Robust Bond Trading
Driven by impressive trading revenues, JPMorgan’s fourth-quarter 2016 earnings of $1.71 per share easily surpassed the Zacks Consensus Estimate of $1.42. Also, the figure reflects a 30% rise from the year-ago period. Notably, the results included a legal charge of $230 million and a tax benefit of $475 million related to the utilization of certain deferred tax assets.
Improved fixed income and equity trading revenues as well as a modest rise in mortgage banking fees and investment banking income drove the results. Further, higher net interest income, perhaps attributable to the rise in loan, supported the top line.
Additionally, a decent decrease in operating expenses and reserve releases in the Oil & Gas and Metals & Mining portfolios aided the bottom-line growth. However, lower Card, Commerce Solutions & Auto revenues hurt results marginally in the quarter.
The overall performance of JPMorgan’s business segments, in terms of net income generation, was impressive. All segments, except Consumer & Community Banking, reported a rise in net income on a year-over-year basis.
Net income for Consumer & Community Banking fell 2% year over year. Asset Management earned 16% higher than the prior-year quarter. Additionally, net income for Corporate & Investment Bank and Commercial Banking surged 96% and 25%, respectively, while the Corporate segment incurred a net loss.
Among other positives, credit card sales volume improved 14% and merchant processing volume grew 10%. Commercial Banking average loan balances increased 14% and Asset Management average loan balances rose 4%.
Higher Trading Revenues, Lower Costs
Managed net revenue of $24.3 billion in the quarter was up 2% from the year-ago quarter. Also, it compared favorably with the Zacks Consensus Estimate of $23.1 billion. A 31% jump in fixed income market revenues and 8% growth in equity market trading were the primary reasons for top-line improvement.
Non-interest expense (on managed basis) was $13.8 billion, 3% lower than the year-ago quarter. The decline was primarily due to lower legal expenses and consistent cost-reduction initiatives.
Notably, excluding legal charges of $230 million, adjusted operating expenses were $13.6 billion.
Credit Quality: A Cause of Concern
JPMorgan’s credit quality deteriorated during the quarter. As of Dec 31, 2016, non-performing assets were $7.5 billion, up 7% from the year-ago period.
Net charge-offs were up 20% year over year to $1.3 billion. However, provision for credit losses fell 31% year over year to $864 million, primarily due to reserve releases in Consumer and Wholesale loan portfolios.
Strong Capital Position
Tier 1 capital ratio (estimated) was 14.1% as of Dec 31, 2016 compared with 13.5% as of Dec 31, 2015. Tier 1 common equity capital ratio (estimated) was 12.4% as of Dec 31, 2016, up from 11.8% as of Dec 31, 2015. Total capital ratio came in at 15.4% (estimated) as of Dec 31, 2016 compared with 15.1% as of Dec 31, 2015.
Book value per share was $64.06 as of Dec 31, 2016 compared with $60.46 as of Dec 31, 2015. Tangible book value per common share came in at $51.44 as of Dec 31, 2016 compared with $48.13 as of Dec 31, 2015.
First Quarter 2017 Outlook
Management anticipates NII to rise marginally on a sequential basis, mainly driven by loan growth and the Dec 2016 rate hike.
For the asset management segment, the company expects revenue to be marginally lower than $3 billion, reflecting seasonality of performance fees.
On expense front, CCB segment costs are expected to increase nearly $150 million sequentially owing to higher auto lease depreciation, as well as seasonally higher compensation and marketing expenses. Moreover, expenses in CB segment are projected to be up from the prior-quarter level to roughly $775 million as the company continues to invest.
2017 Outlook
With the Dec 2016 rate hike and the expected loan growth, the company projects NII to increase about $3 billion, based on the expectation of no further rate hike this year.
On the expense front, management expects adjusted expenses to be nearly $56 billion (relatively stable on a year-over-year basis).
Management projects loan growth to be at the lower end of its guidance of 10–15%.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend for fresh estimates. There have been two revisions higher for the current quarter compared to three lower. While looking back an additional 30 days, we can see even more downward momentum. There have been five downward revisions in the last two months.
At this time, JPMorgan' s stock has a poor Growth Score of 'F', however its momentum is doing a bit better with a 'D'. Charting a somewhat similar path, 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 aggregte VGM score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Outlook
While estimates have been broadly trending downward for the stock, the magnitude of these revisions indicates a downward shift. However, the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.
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Why Is JPMorgan (JPM) Up 7.9% Since the Last Earnings Report?
It has been about a month since the last earnings report for JPMorgan Chase & Co (JPM - Free Report) . Shares have added nearly 8% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
JPMorgan Beats Q4 Earnings on Robust Bond Trading
Driven by impressive trading revenues, JPMorgan’s fourth-quarter 2016 earnings of $1.71 per share easily surpassed the Zacks Consensus Estimate of $1.42. Also, the figure reflects a 30% rise from the year-ago period. Notably, the results included a legal charge of $230 million and a tax benefit of $475 million related to the utilization of certain deferred tax assets.
Improved fixed income and equity trading revenues as well as a modest rise in mortgage banking fees and investment banking income drove the results. Further, higher net interest income, perhaps attributable to the rise in loan, supported the top line.
Additionally, a decent decrease in operating expenses and reserve releases in the Oil & Gas and Metals & Mining portfolios aided the bottom-line growth. However, lower Card, Commerce Solutions & Auto revenues hurt results marginally in the quarter.
The overall performance of JPMorgan’s business segments, in terms of net income generation, was impressive. All segments, except Consumer & Community Banking, reported a rise in net income on a year-over-year basis.
Net income for Consumer & Community Banking fell 2% year over year. Asset Management earned 16% higher than the prior-year quarter. Additionally, net income for Corporate & Investment Bank and Commercial Banking surged 96% and 25%, respectively, while the Corporate segment incurred a net loss.
Among other positives, credit card sales volume improved 14% and merchant processing volume grew 10%. Commercial Banking average loan balances increased 14% and Asset Management average loan balances rose 4%.
Higher Trading Revenues, Lower Costs
Managed net revenue of $24.3 billion in the quarter was up 2% from the year-ago quarter. Also, it compared favorably with the Zacks Consensus Estimate of $23.1 billion. A 31% jump in fixed income market revenues and 8% growth in equity market trading were the primary reasons for top-line improvement.
Non-interest expense (on managed basis) was $13.8 billion, 3% lower than the year-ago quarter. The decline was primarily due to lower legal expenses and consistent cost-reduction initiatives.
Notably, excluding legal charges of $230 million, adjusted operating expenses were $13.6 billion.
Credit Quality: A Cause of Concern
JPMorgan’s credit quality deteriorated during the quarter. As of Dec 31, 2016, non-performing assets were $7.5 billion, up 7% from the year-ago period.
Net charge-offs were up 20% year over year to $1.3 billion. However, provision for credit losses fell 31% year over year to $864 million, primarily due to reserve releases in Consumer and Wholesale loan portfolios.
Strong Capital Position
Tier 1 capital ratio (estimated) was 14.1% as of Dec 31, 2016 compared with 13.5% as of Dec 31, 2015. Tier 1 common equity capital ratio (estimated) was 12.4% as of Dec 31, 2016, up from 11.8% as of Dec 31, 2015. Total capital ratio came in at 15.4% (estimated) as of Dec 31, 2016 compared with 15.1% as of Dec 31, 2015.
Book value per share was $64.06 as of Dec 31, 2016 compared with $60.46 as of Dec 31, 2015. Tangible book value per common share came in at $51.44 as of Dec 31, 2016 compared with $48.13 as of Dec 31, 2015.
First Quarter 2017 Outlook
Management anticipates NII to rise marginally on a sequential basis, mainly driven by loan growth and the Dec 2016 rate hike.
For the asset management segment, the company expects revenue to be marginally lower than $3 billion, reflecting seasonality of performance fees.
On expense front, CCB segment costs are expected to increase nearly $150 million sequentially owing to higher auto lease depreciation, as well as seasonally higher compensation and marketing expenses. Moreover, expenses in CB segment are projected to be up from the prior-quarter level to roughly $775 million as the company continues to invest.
2017 Outlook
With the Dec 2016 rate hike and the expected loan growth, the company projects NII to increase about $3 billion, based on the expectation of no further rate hike this year.
On the expense front, management expects adjusted expenses to be nearly $56 billion (relatively stable on a year-over-year basis).
Management projects loan growth to be at the lower end of its guidance of 10–15%.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend for fresh estimates. There have been two revisions higher for the current quarter compared to three lower. While looking back an additional 30 days, we can see even more downward momentum. There have been five downward revisions in the last two months.
JPMorgan Chase & Co Price and Consensus
JPMorgan Chase & Co Price and Consensus | JPMorgan Chase & Co Quote
VGM Scores
At this time, JPMorgan' s stock has a poor Growth Score of 'F', however its momentum is doing a bit better with a 'D'. Charting a somewhat similar path, 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 aggregte VGM score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Outlook
While estimates have been broadly trending downward for the stock, the magnitude of these revisions indicates a downward shift. However, the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.