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J P Morgan (JPM) Up 3% Since Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for J P Morgan Chase & Co. (JPM - Free Report) . Shares have added nearly 3% 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 its most recent earnings report in order to get a better handle on the important drivers.
JPMorgan Q1 Earnings Easily Beat with Surprising Loan Growth
Impressive investment banking and trading revenues drove JPMorgan’s first-quarter 2017 earnings of $1.65 per share, which handily outpaced the Zacks Consensus Estimate of $1.51. Also, the figure reflects a 22% rise from the year-ago period. Notably, the results included a legal charge of $218 million and a tax benefit of $373 million.
Improved fixed income and equity trading as well as a solid performance in investment banking drove the results. Also, strong loan growth and higher interest rates supported the top line.
Apart from these, results were supported by a fall in provision for credit losses mainly driven by reserve releases in the Oil & Gas loan portfolio. However, operating expenses reported a rise during the quarter. Also, lower mortgage banking income owing to fall in servicing revenues was a headwind.
The overall performance of JPMorgan’s business segments, in terms of net income generation, was decent. All segments, except Consumer & Community Banking and Asset & Wealth Management, reported a rise in net income on a year-over-year basis.
Net income for Consumer & Community Banking fell 20% year over year while Asset Management declined 34%. However, net income for Corporate & Investment Bank and Commercial Banking surged 64% and 61%, respectively while the Corporate segment pleasantly surprised with net income.
Among other positives, credit card sales volume improved 15% and merchant processing volume grew 11%. Commercial Banking average loan balances increased 12% and Asset Management average loan balances rose 7%.
Managed net revenue of $25.6 billion in the quarter was up 6% from the year-ago quarter. A 37% jump in investment banking fees and 17% rise in fixed income market revenues were the primary reasons for the top-line improvement.
Non-interest expenses (on managed basis) were $15 billion, a rise of 9% from the year-ago quarter. The increase was primarily due to higher compensation and legal expenses, auto lease depreciation and FDIC-related costs. Notably, excluding legal charges, adjusted operating expenses were $14.8 billion.
Credit Quality: A Mixed Bag
As of Mar 31, 2017, non-performing assets were $6.8 billion, down 15% from the year-ago period. Provision for credit losses fell 28% year over year to $1.3 billion, primarily due to reserve releases in Wholesale loan portfolio.
However, net charge-offs were up 49% year over year to $1.7 billion.
Strong Capital Position
Tier 1 capital ratio (estimated) was 14.2% as of Mar 31, 2017 compared with 13.5% as of Mar 31, 2016. Tier 1 common equity capital ratio (estimated) was 12.5% as of Mar 31, 2017, up from 11.9% as of Mar 31, 2016. Total capital ratio came in at 15.6% (estimated) as of Mar 31, 2017 compared with 15.1% as of Mar 31, 2016.
Book value per share was $64.68 as of Mar 31, 2017 compared with $61.28 as of Mar 31, 2016. Tangible book value per common share came in at $52.04 as of Mar 31, 2017 compared with $48.96 as of Mar 31, 2016.
Outlook
In the second quarter 2017, management anticipates NII to increase $400 million on a sequential basis driven by continued growth in loans and rate hikes. For 2017, the company projects NII to increase about $4.5 billion, based on steeper yield curve.
Mortgage revenues are expected to fall roughly $700 million, mainly owing to margin compression in a smaller mortgage market and continued run-off of the Servicing portfolio. Moreover, card services income will decline $600 million, largely reflecting amortization of premiums on strong new product originations.
JPMorgan expects operating expenses (excluding legal charges) to be around $58 million. Looking forward, management expects underlying expense in CB segment to be relatively flat.
Management projects average core loan growth to be around 10% in 2017 that will be funded from strong deposit balance.
JPMorgan expects net charge-off (NCOs) rate to be relatively flat across all businesses except Cards (up but below 3% reflecting continued loan growth and the seasoning of newer vintages) and Corporate and Investment Bank CIB (down on absence of energy related NCOs).
Notably, NCOs are projected to be around $5 billion (excluding NCOs of $467 million related to the student loan portfolio write-down in the first quarter), driven by loan growth.
Consumer allowance for credit losses will likely increase $300 million this year, owing to growth across businesses, partly offset by allowance releases for the residential real estate portfolio. Further, wholesale allowance for credit losses (excluding energy and metals & mining portfolios) is expected to rise marginally. Management expects potential reserve releases in energy portfolio in the upcoming quarters, reflecting stabilizing oil prices.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been two upward revisions for the current quarter compared to one downward.
At this time, J P Morgan's stock has a poor Growth Score of 'F', however its Momentum is doing a lot better with a 'C'. However, the stock was allocated a grade of 'F' on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.
The stock is suitable solely for momentum based on our styles scores.
Outlook
Estimates have been broadly trending upward for the stock. The magnitude of these revisions also looks promising. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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J P Morgan (JPM) Up 3% Since Earnings Report: Can It Continue?
It has been about a month since the last earnings report for J P Morgan Chase & Co. (JPM - Free Report) . Shares have added nearly 3% 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 its most recent earnings report in order to get a better handle on the important drivers.
JPMorgan Q1 Earnings Easily Beat with Surprising Loan Growth
Impressive investment banking and trading revenues drove JPMorgan’s first-quarter 2017 earnings of $1.65 per share, which handily outpaced the Zacks Consensus Estimate of $1.51. Also, the figure reflects a 22% rise from the year-ago period. Notably, the results included a legal charge of $218 million and a tax benefit of $373 million.
Improved fixed income and equity trading as well as a solid performance in investment banking drove the results. Also, strong loan growth and higher interest rates supported the top line.
Apart from these, results were supported by a fall in provision for credit losses mainly driven by reserve releases in the Oil & Gas loan portfolio. However, operating expenses reported a rise during the quarter. Also, lower mortgage banking income owing to fall in servicing revenues was a headwind.
The overall performance of JPMorgan’s business segments, in terms of net income generation, was decent. All segments, except Consumer & Community Banking and Asset & Wealth Management, reported a rise in net income on a year-over-year basis.
Net income for Consumer & Community Banking fell 20% year over year while Asset Management declined 34%. However, net income for Corporate & Investment Bank and Commercial Banking surged 64% and 61%, respectively while the Corporate segment pleasantly surprised with net income.
Among other positives, credit card sales volume improved 15% and merchant processing volume grew 11%. Commercial Banking average loan balances increased 12% and Asset Management average loan balances rose 7%.
Higher Investment Banking & Trading Revenues, Costs Rise
Managed net revenue of $25.6 billion in the quarter was up 6% from the year-ago quarter. A 37% jump in investment banking fees and 17% rise in fixed income market revenues were the primary reasons for the top-line improvement.
Non-interest expenses (on managed basis) were $15 billion, a rise of 9% from the year-ago quarter. The increase was primarily due to higher compensation and legal expenses, auto lease depreciation and FDIC-related costs. Notably, excluding legal charges, adjusted operating expenses were $14.8 billion.
Credit Quality: A Mixed Bag
As of Mar 31, 2017, non-performing assets were $6.8 billion, down 15% from the year-ago period. Provision for credit losses fell 28% year over year to $1.3 billion, primarily due to reserve releases in Wholesale loan portfolio.
However, net charge-offs were up 49% year over year to $1.7 billion.
Strong Capital Position
Tier 1 capital ratio (estimated) was 14.2% as of Mar 31, 2017 compared with 13.5% as of Mar 31, 2016. Tier 1 common equity capital ratio (estimated) was 12.5% as of Mar 31, 2017, up from 11.9% as of Mar 31, 2016. Total capital ratio came in at 15.6% (estimated) as of Mar 31, 2017 compared with 15.1% as of Mar 31, 2016.
Book value per share was $64.68 as of Mar 31, 2017 compared with $61.28 as of Mar 31, 2016. Tangible book value per common share came in at $52.04 as of Mar 31, 2017 compared with $48.96 as of Mar 31, 2016.
Outlook
In the second quarter 2017, management anticipates NII to increase $400 million on a sequential basis driven by continued growth in loans and rate hikes. For 2017, the company projects NII to increase about $4.5 billion, based on steeper yield curve.
Mortgage revenues are expected to fall roughly $700 million, mainly owing to margin compression in a smaller mortgage market and continued run-off of the Servicing portfolio. Moreover, card services income will decline $600 million, largely reflecting amortization of premiums on strong new product originations.
JPMorgan expects operating expenses (excluding legal charges) to be around $58 million. Looking forward, management expects underlying expense in CB segment to be relatively flat.
Management projects average core loan growth to be around 10% in 2017 that will be funded from strong deposit balance.
JPMorgan expects net charge-off (NCOs) rate to be relatively flat across all businesses except Cards (up but below 3% reflecting continued loan growth and the seasoning of newer vintages) and Corporate and Investment Bank CIB (down on absence of energy related NCOs).
Notably, NCOs are projected to be around $5 billion (excluding NCOs of $467 million related to the student loan portfolio write-down in the first quarter), driven by loan growth.
Consumer allowance for credit losses will likely increase $300 million this year, owing to growth across businesses, partly offset by allowance releases for the residential real estate portfolio. Further, wholesale allowance for credit losses (excluding energy and metals & mining portfolios) is expected to rise marginally. Management expects potential reserve releases in energy portfolio in the upcoming quarters, reflecting stabilizing oil prices.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been two upward revisions for the current quarter compared to one downward.
J P Morgan Chase & Co Price and Consensus
J P Morgan Chase & Co Price and Consensus | J P Morgan Chase & Co Quote
VGM Scores
At this time, J P Morgan's stock has a poor Growth Score of 'F', however its Momentum is doing a lot better with a 'C'. However, the stock was allocated a grade of 'F' on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.
The stock is suitable solely for momentum based on our styles scores.
Outlook
Estimates have been broadly trending upward for the stock. The magnitude of these revisions also looks promising. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.