We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
JPMorgan vs. Wells Fargo: Which Is Better Ahead of Earnings?
Read MoreHide Full Article
Possibly the single largest beneficiary of the “Trump Rally” -- bank stocks -- were quick to latch onto expectations of an easier regulatory environment following a surprise election result. Starting Nov 7, the KBW Nasdaq Bank Index gained 32% to attain a peak level on Mar 1. The industry received yet another boost on Mar 15 when the Federal Reserve raised rates for the third time in 15 months, as well as a decade.
But bank stocks have been falling steadily recently with the same index losing more than 6% over the last month. Trump’s failure to pass a new healthcare law has led to questions about his ability to push through changes to the Dodd Frank Act. Concerns about valuations are also doing the rounds. In this context, key bank earnings scheduled for release over this week and the next, including Goldman Sachs (GS - Free Report) and Morgan Stanley (MS - Free Report) , assume greater significance.
Wells Fargo has remained in the news following the sales scam that came into light in Sep 2016. The San Francisco-based banking giant undertook a number of steps to restore its reputation, post scandal. Moreover, management proposed to eliminate sales goals for its retail banking business earlier than planned. (Read: Wells Fargo (WFC - Free Report) to Post Q1 Earnings: What's in Store?)
In contrast, JPMorgan approved a 4.2% hike in the company’s quarterly common stock dividend last month. The revised quarterly dividend now comes in at 50 cents per share, compared with the previous figure of 48 cents. The dividend will be paid on Apr 30, 2017, to shareholders of record as of Apr 6. (Read: JPMorgan (JPM - Free Report) Rewards Shareholders with 4.2% Dividend Hike)
Return on Assets (ROA)
Currently, Wells Fargo holds total assets of $1.93 trillion while JPMorgan has total assets of 2.49 trillion. Our research shows that the average one year trailing 12-month ROA for Wells Fargo stands at 1.2%, higher than 1% for JPMorgan.
Price Performance
Shares of both JPMorgan and Wells Fargo have remained depressed in the year-to-date period, with the stocks losing 0.5% and 1%, respectively in the time frame. However, over the last year, JPMorgan has gained 44.9%, outperforming the Zacks categorized Banks - Major Regional industry which has moved up 27.3%. In comparison, Wells Fargo has underperformed the broader industry and JPMorgan, gaining only 14.2% over the last year.
Valuation
Compared with the S&P 500, the Banks - Major Regional industry is undervalued. This implies that the industry has the potential to gain in the near future. The industry has an average one year trailing 12-month P/B ratio – which is the best multiple for valuing banks because of large variations in their earnings results from one quarter to the next – of 1.50, which is below the S&P 500 average of 3.53. Hence, it might be a good idea not to stay away from stocks belonging to this industry.
Coming to the two stocks under consideration, with a P/B ratio of 1.35 Wells Fargo is undervalued compared to the S&P 500 and the industry. However, though JPMorgan is undervalued compared to the S&P, with a P/B ratio of 1.55, it is pricier than the broader industry.
Dividend Yield
In the last one-year period, the dividend yield for both JPMorgan and Wells Fargo was higher than the broader industry. The industry has an average dividend yield of 2%, lower than 2.8% for Wells Fargo and 2.3% for JPMorgan.
Hence, on a comparable basis, Wells Fargo shareholders earned a better dividend yield than JPMorgan.
Earnings History and ESP
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. 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.
In comparison, Wells Fargo posted a more mixed earnings result for the same period. Driven by interest income, Wells Fargo’s fourth-quarter 2016 earnings recorded a positive surprise of about 3%. Adjusted earnings of $1.03 per share outpaced the Zacks Consensus Estimate by 3 cents. However, though revenues came in at $88.3 billion, marking a year-over-year increase of 3%, they lagged the Zacks Consensus Estimate of $89.4 billion.
Considering a more comprehensive earnings history, JPMorgan has delivered positive surprises in all the prior four quarters with an average earnings surprise of 12.2%. In contrast, Wells Fargo delivered an earnings beat in three of the trailing four quarters, with an average positive earnings surprise of 1.01%. But the situation changes when considering Earnings ESP values, with JPMorgan clocking in at -1.33% while WFC’s reading stands at 0%.
Conclusion
Our comparative analysis shows that JPMorgan holds an edge over Wells Fargo only when considering price performance and earnings history. However, on all other counts, Wells Fargo is clearly a better stock. This is particularly borne out by JPMorgan’s negative Earnings ESP value which indicates that it is tipped to miss estimates. This is why it may be better to bet on Wells Fargo over JPMorgan despite both of them carrying a Zacks Rank #3.
Looking for Ideas with Even Greater Upside? Most of Zacks’ investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more. Click here for a peek at this private information>>
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
JPMorgan vs. Wells Fargo: Which Is Better Ahead of Earnings?
Possibly the single largest beneficiary of the “Trump Rally” -- bank stocks -- were quick to latch onto expectations of an easier regulatory environment following a surprise election result. Starting Nov 7, the KBW Nasdaq Bank Index gained 32% to attain a peak level on Mar 1. The industry received yet another boost on Mar 15 when the Federal Reserve raised rates for the third time in 15 months, as well as a decade.
But bank stocks have been falling steadily recently with the same index losing more than 6% over the last month. Trump’s failure to pass a new healthcare law has led to questions about his ability to push through changes to the Dodd Frank Act. Concerns about valuations are also doing the rounds. In this context, key bank earnings scheduled for release over this week and the next, including Goldman Sachs (GS - Free Report) and Morgan Stanley (MS - Free Report) , assume greater significance.
With JPMorgan Chase & Co. (JPM - Free Report) and Wells Fargo & Company (WFC - Free Report) scheduled to report on Apr 13, this may be a good time to consider which of these is a better stock. Both of them have a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Wells Fargo Combats Sales Scam Woes, JPM Hikes Dividend
Wells Fargo has remained in the news following the sales scam that came into light in Sep 2016. The San Francisco-based banking giant undertook a number of steps to restore its reputation, post scandal. Moreover, management proposed to eliminate sales goals for its retail banking business earlier than planned. (Read: Wells Fargo (WFC - Free Report) to Post Q1 Earnings: What's in Store?)
In contrast, JPMorgan approved a 4.2% hike in the company’s quarterly common stock dividend last month. The revised quarterly dividend now comes in at 50 cents per share, compared with the previous figure of 48 cents. The dividend will be paid on Apr 30, 2017, to shareholders of record as of Apr 6. (Read: JPMorgan (JPM - Free Report) Rewards Shareholders with 4.2% Dividend Hike)
Return on Assets (ROA)
Currently, Wells Fargo holds total assets of $1.93 trillion while JPMorgan has total assets of 2.49 trillion. Our research shows that the average one year trailing 12-month ROA for Wells Fargo stands at 1.2%, higher than 1% for JPMorgan.
Price Performance
Shares of both JPMorgan and Wells Fargo have remained depressed in the year-to-date period, with the stocks losing 0.5% and 1%, respectively in the time frame. However, over the last year, JPMorgan has gained 44.9%, outperforming the Zacks categorized Banks - Major Regional industry which has moved up 27.3%. In comparison, Wells Fargo has underperformed the broader industry and JPMorgan, gaining only 14.2% over the last year.
Valuation
Compared with the S&P 500, the Banks - Major Regional industry is undervalued. This implies that the industry has the potential to gain in the near future. The industry has an average one year trailing 12-month P/B ratio – which is the best multiple for valuing banks because of large variations in their earnings results from one quarter to the next – of 1.50, which is below the S&P 500 average of 3.53. Hence, it might be a good idea not to stay away from stocks belonging to this industry.
Coming to the two stocks under consideration, with a P/B ratio of 1.35 Wells Fargo is undervalued compared to the S&P 500 and the industry. However, though JPMorgan is undervalued compared to the S&P, with a P/B ratio of 1.55, it is pricier than the broader industry.
Dividend Yield
In the last one-year period, the dividend yield for both JPMorgan and Wells Fargo was higher than the broader industry. The industry has an average dividend yield of 2%, lower than 2.8% for Wells Fargo and 2.3% for JPMorgan.
Hence, on a comparable basis, Wells Fargo shareholders earned a better dividend yield than JPMorgan.
Earnings History and ESP
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. 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.
In comparison, Wells Fargo posted a more mixed earnings result for the same period. Driven by interest income, Wells Fargo’s fourth-quarter 2016 earnings recorded a positive surprise of about 3%. Adjusted earnings of $1.03 per share outpaced the Zacks Consensus Estimate by 3 cents. However, though revenues came in at $88.3 billion, marking a year-over-year increase of 3%, they lagged the Zacks Consensus Estimate of $89.4 billion.
Considering a more comprehensive earnings history, JPMorgan has delivered positive surprises in all the prior four quarters with an average earnings surprise of 12.2%. In contrast, Wells Fargo delivered an earnings beat in three of the trailing four quarters, with an average positive earnings surprise of 1.01%. But the situation changes when considering Earnings ESP values, with JPMorgan clocking in at -1.33% while WFC’s reading stands at 0%.
Conclusion
Our comparative analysis shows that JPMorgan holds an edge over Wells Fargo only when considering price performance and earnings history. However, on all other counts, Wells Fargo is clearly a better stock. This is particularly borne out by JPMorgan’s negative Earnings ESP value which indicates that it is tipped to miss estimates. This is why it may be better to bet on Wells Fargo over JPMorgan despite both of them carrying a Zacks Rank #3.
Looking for Ideas with Even Greater Upside?
Most of Zacks’ investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more. Click here for a peek at this private information>>