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JPMorgan Chase & Co. (JPM - Analyst Report) prepares to release its fourth-quarter 2012 results before the opening bell tomorrow, Wednesday, Jan 16.

In the last quarter, it delivered a 15.7% positive earnings surprise on the back of a marked improvement in capital market activity and healthy mortgage business. This represented the third straight quarter of positive earnings surprise. Let’s see how things are shaping up prior to the announcement.

Factors to Consider this Quarter

While capital market activity remained strong, investors were a tad cautious in terms of investments due to the presidential election and the uncertainty related to the fiscal cliff during the quarter. As a result, non-interest revenue sources should not be a strong support to the top line. Also, higher litigation expenses may keep total expenses high.

Though an uptick in mortgage activity and lesser credit loss provisions are expected to act as tailwinds, sluggish loan growth in a low interest rate environment and the resultant pressure on the top line may restrict bottom-line improvement this announcement.     

Unlike the third quarter, activities of this banking giant during the final quarter of the year were not enough to win analysts’ confidence. The Zacks Consensus Estimate for the fourth quarter has moved down by a cent to $1.20 per share over the last 7 days as the tendency for a downward estimate revision was more obvious.

Earnings Whispers

Our proven model does not conclusively show that JPMorgan is likely to beat the Zacks Consensus Estimate in the fourth quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #1 (Strong Buy) or at least Zacks Rank #2 (Buy) or Zacks Rank #3 (Hold) for this to happen. Unfortunately this is not the case here as elaborated below.

Negative Zacks ESP:  This is because the Most Accurate estimate stands at $1.17 while the Zacks Consensus is higher at $1.20. This results in a difference of negative 2.5%.
 
Zacks Rank #3 (Hold): JPMorgan’s Zacks Rank of 3, however, increases the predictive power of ESP. That said we also need to have a positive ESP to be confident for an earnings surprise call.  

Other Stocks to Consider

Here are some other companies you may want to consider on the basis of our model which shows that they have the right combination of elements to post an earnings beat this quarter:

The Goldman Sachs Group Inc. (GS - Analyst Report) has Earnings ESP of positive 1.78% and carries a Zacks Rank #3 (Hold). It is scheduled to report its fourth quarter results on Jan 16.

Fifth Third Bancorp (FITB - Analyst Report) will release its fourth quarter results on Jan 17. It has Earnings ESP of positive 2.38% and holds a Zacks Rank #2 (Buy).

SunTrust Banks Inc. (STI - Analyst Report) has Earnings ESP of positive 4.92% and carries a Zacks Rank #3 (Hold). It is scheduled to release its fourth quarter results on Jan 18.

JPMorgan, with exposure in almost all banking businesses, is the second among the banking big shots to report fourth-quarter earnings. Therefore, the release is going to be a significant indicator of performance in the key banking sector. Wells Fargo & Company (WFC - Analyst Report) was the first mega bank to kick-start the fourth-quarter banking results.

About Earnings ESP

Would you like to own more stocks likely to beat their next earnings report? And avoid stocks likely to disappoint?

If yes, then it’s time you learn about the Earnings ESP score available on Zacks.com.

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