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JP Morgan (JPM) Up 0.6% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for JPMorgan Chase (JPM - Free Report) . Shares have added about 0.6% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is JP Morgan 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 Q4 Earnings Lag on Trading, Underwriting Woes
Dismal fixed income trading and underwriting business performance affected JPMorgan’s fourth-quarter 2018 earnings of $1.98 per share, which lagged the Zacks Consensus Estimate of $2.20. However, the figure surged 85% from the prior-year quarter.
As expected, Markets revenues recorded a fall. A 15% rise in equity trading income was offset by 16% decline in fixed income trading revenues. Further, home lending business revenues fell 8% year over year, mainly due to lower net production revenues.
Further, operating expenses increased in the reported quarter. Also, provision for credit losses recorded a rise.
Notably, investment banking fees recorded modest growth, with 38% jump in advisory fees, partially offset by decline in equity and debt underwriting fees. Decent loan growth (driven largely by rise in wholesale and credit card loans) and higher interest rates supported net interest income growth.
Among other positives, credit card sales volume was up 10% and merchant processing volume grew 17%. Further, Commercial Banking average core balances jumped 2% and Asset Management average loan balances were up 13%.
The overall performance of JPMorgan’s business segments, in terms of net income generation, was decent. All segments, except Corporate & Investment Bank and Asset & Wealth Management, reported rise in net income on a year-over-year basis.
Net income surged 67% from the prior-year quarter to $7.1 billion. The year-ago quarter included a $2.4 billion reduction to net income due to the enactment of the Tax Cuts & Jobs Act.
Higher Rates & Loan Growth Aid Revenues, Costs Rise
Net revenues as reported were $26.1 billion, up 7% from the year-ago quarter. Rising rates and loan growth were the main reasons for the improvement. The positives were partially offset by decrease in Markets net interest revenues and mortgage banking fees. However, the top line missed the Zacks Consensus Estimate of $26.7 billion.
Non-interest expenses (on managed basis) were $15.7 billion, up 6% from the year-ago quarter. The rise was primarily due to investments in business and auto loan depreciation.
Credit Quality: A Mixed Bag
Provision for credit losses was $1.5 billion, up 18% year over year. The increase was mainly due to reserve builds in consumer and wholesale loan portfolios.
As of Dec 31, 2018, non-performing assets were $5.2 billion, down 19% from Dec 31, 2017. Also, net charge-offs declined 2% year over year to $1.2 billion.
Strong Capital Position
Tier 1 capital ratio (estimated) was 13.7% as of fourth-quarter end compared with 13.9% on Dec 31, 2017. Tier 1 common equity capital ratio (estimated) was 12.0% as of Dec 31, 2018, down from 12.2%. Total capital ratio was 15.5% (estimated) at the end of the year compared with 15.9% on Dec 31, 2017.
Book value per share was $70.35 as of Dec 31, 2018 compared with $67.04 on Dec 31, 2017. Tangible book value per common share came in at $56.33 at the end of December compared with $53.56 a year ago.
First-Quarter 2019 Outlook
Management expects NII to be nearly stable sequentially, given the benefits from higher rates and loan growth offset by lower day count.
Also, fee income will likely witness seasonal strength, driven by strong capital market pipelines and favorable operating environment.
Further, expenses are anticipated to be up mid-single digits on year-over-year basis.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
Currently, JP Morgan has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of F on the value side, putting it in the fifth 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.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, JP Morgan has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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JP Morgan (JPM) Up 0.6% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for JPMorgan Chase (JPM - Free Report) . Shares have added about 0.6% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is JP Morgan 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 Q4 Earnings Lag on Trading, Underwriting Woes
Dismal fixed income trading and underwriting business performance affected JPMorgan’s fourth-quarter 2018 earnings of $1.98 per share, which lagged the Zacks Consensus Estimate of $2.20. However, the figure surged 85% from the prior-year quarter.
As expected, Markets revenues recorded a fall. A 15% rise in equity trading income was offset by 16% decline in fixed income trading revenues. Further, home lending business revenues fell 8% year over year, mainly due to lower net production revenues.
Further, operating expenses increased in the reported quarter. Also, provision for credit losses recorded a rise.
Notably, investment banking fees recorded modest growth, with 38% jump in advisory fees, partially offset by decline in equity and debt underwriting fees. Decent loan growth (driven largely by rise in wholesale and credit card loans) and higher interest rates supported net interest income growth.
Among other positives, credit card sales volume was up 10% and merchant processing volume grew 17%. Further, Commercial Banking average core balances jumped 2% and Asset Management average loan balances were up 13%.
The overall performance of JPMorgan’s business segments, in terms of net income generation, was decent. All segments, except Corporate & Investment Bank and Asset & Wealth Management, reported rise in net income on a year-over-year basis.
Net income surged 67% from the prior-year quarter to $7.1 billion. The year-ago quarter included a $2.4 billion reduction to net income due to the enactment of the Tax Cuts & Jobs Act.
Higher Rates & Loan Growth Aid Revenues, Costs Rise
Net revenues as reported were $26.1 billion, up 7% from the year-ago quarter. Rising rates and loan growth were the main reasons for the improvement. The positives were partially offset by decrease in Markets net interest revenues and mortgage banking fees. However, the top line missed the Zacks Consensus Estimate of $26.7 billion.
Non-interest expenses (on managed basis) were $15.7 billion, up 6% from the year-ago quarter. The rise was primarily due to investments in business and auto loan depreciation.
Credit Quality: A Mixed Bag
Provision for credit losses was $1.5 billion, up 18% year over year. The increase was mainly due to reserve builds in consumer and wholesale loan portfolios.
As of Dec 31, 2018, non-performing assets were $5.2 billion, down 19% from Dec 31, 2017. Also, net charge-offs declined 2% year over year to $1.2 billion.
Strong Capital Position
Tier 1 capital ratio (estimated) was 13.7% as of fourth-quarter end compared with 13.9% on Dec 31, 2017. Tier 1 common equity capital ratio (estimated) was 12.0% as of Dec 31, 2018, down from 12.2%. Total capital ratio was 15.5% (estimated) at the end of the year compared with 15.9% on Dec 31, 2017.
Book value per share was $70.35 as of Dec 31, 2018 compared with $67.04 on Dec 31, 2017. Tangible book value per common share came in at $56.33 at the end of December compared with $53.56 a year ago.
First-Quarter 2019 Outlook
Management expects NII to be nearly stable sequentially, given the benefits from higher rates and loan growth offset by lower day count.
Also, fee income will likely witness seasonal strength, driven by strong capital market pipelines and favorable operating environment.
Further, expenses are anticipated to be up mid-single digits on year-over-year basis.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
Currently, JP Morgan has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of F on the value side, putting it in the fifth 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.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, JP Morgan has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.