Back to top

Image: Bigstock

Can JPMorgan (JPM) Break Out of Recent Sloth on Q1 Earnings?

Read MoreHide Full Article

One of the key factors that might help JPMorgan Chase & Co. (JPM - Free Report) gain investors’ confidence when it releases first-quarter results on Apr 13 is the favorable impact of rising rates on its interest income. A decent trend in this respect might convince investors to bet on its potential to earn from huge investable assets.

The stock, which recently snapped the Trump-induced rally on weaker Treasury yields and dampened enthusiasm over the President’s promises, may get a boost from a trading revenue backed betterment in earnings. While lower expenses, which have been a reliable earnings driver for quite some time, might not be a game changer, an expected improvement in mortgage revenues might be of some help.

Decent growth in consumer loans might translate into some revenue growth. However, it will likely be offset majorly by decline in commercial and industrial loans.

The earnings estimate revisions clearly depict pessimism. The Zacks Consensus Estimate for the about-to-be-reported quarter was revised downward over the last 30 days to $1.51 with four estimates moving lower and one moving higher. However, the Zacks Consensus Estimate reflects a year-over-year improvement of 11.9%.  

Decreasing earnings estimates enhance the chance of a beat. However, our quantitative model doesn’t point to an earnings beat this time. 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 -0.66%. This is because the Most Accurate estimate of $1.50 is lower than the Zacks Consensus Estimate.  You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
 
Zacks Rank: JPMorgan carries a Zacks Rank #3 (Hold), but this alone isn’t enough to increase the chance of an earnings beat.

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:

Uncertainty should lead to solid trading revenues: Trading revenues are likely to show decent improvement in the quarter, as there was uncertainty related to Trump's policy changes. Particularly, fixed-income trading activity soared since the presidential election. Trading in equities should not be disappointing either.    

Specialty in investment banking might have helped: Overall investment banking business in the U.S. was not impressive during the quarter. But JPMorgan may have used the same tactic that helped it to earn the majority of fees in global investment banking in 2016.

Mortgage revenues likely to grow: An expected higher rate environment and less-concerned lenders over regulatory restrictions drove demand for refinancing during the quarter. This might have helped JPMorgan generate decent mortgage revenues. 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.

Sluggish loan growth to keep net interest income under pressure: While higher interest rates may slightly get reflected in first-quarter results, a feeble lending scenario due to uncertainty over Trump’s policy goals and cheaper ways to borrow might curb net interest income growth.  

Expense reduction to usually support earnings: 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.

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 of elements for an earnings beat this time around:

The PNC Financial Services (PNC - Free Report) , scheduled to report results on Apr 13, has an Earnings ESP of +0.54% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

M&T Bank Corporation (MTB - Free Report) has an Earnings ESP of +1.56% and carries a Zacks Rank #3. The company is scheduled to release results on Apr 17.

KeyCorp (KEY - Free Report) has an Earnings ESP of +3.70% and carries a Zacks Rank #3. It is scheduled to report results on Apr 20.

Want to learn more about major banks’ earnings? Check out our recent video article for additional information:



Zacks’ Best Private Investment Ideas

While we are happy to share many articles like this on the website, our best recommendations and most in-depth research are not available to the public. Starting today, for the next month, you can 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. Click here for Zacks' private trades >>