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We expect JPMorgan Chase & Co. (JPM - Analyst Report) to beat earnings expectations when it reports first-quarter 2013 results before the opening bell tomorrow, Apr 12.

Why a Likely Positive Surprise?

Our proven model shows that JPMorgan has the right combination of two key ingredients to beat earnings.

Positive Zacks ESP: The earnings ESP (Read: Zacks Earnings ESP: A Better Method) for JPMorgan is +2.92% – the difference between the Most Accurate estimate of $1.41 and the Zacks Consensus Estimate of $1.37. This indicates a likely positive earnings surprise.
 
Zacks Rank #2 (Buy): JPMorgan’s Zacks Rank of 2 increases the predictive power of its ESP. The combination of its Zacks Rank and Earnings ESP makes us confident of a positive earnings surprise in the to-be-reported quarter.

Note that stocks with Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.   

Drivers of Better-than-Expected Earnings

As capital market activity remained strong during the January-March period with continued support from the Fed, the propensity to invest in the market increased. Given the prevailing low interest rate environment, there was a surge in demand for financial instruments that are not interest rate sensitive and offer better returns. As a result, non-interest revenue sources, primarily trading revenue, should be a strong support to the top line this quarter.

Though sluggish loan growth will keep interest income under pressure and increased litigations will raise total expenses, an uptick in mortgage activity and lesser credit loss provisions will likely support bottom-line improvement this announcement.

Moreover, rising home prices and falling unemployment have increased lending through credit cards. As a result, the company should report better results in its credit card business.

Unlike the fourth quarter of 2012, activities of this banking giant during the first quarter of 2013 were sufficient to win analysts’ confidence. The Zacks Consensus Estimate for the first quarter has inched up by a cent to $1.37 per share over the last 7 days as the tendency for an upward estimate revision was more obvious.
 
Other Stocks to Consider

JPMorgan is not the only bank looking up this earnings season. Here are some other banks you may want to consider as our model shows these have the right combination of elements to post an earnings beat this season:

The Goldman Sachs Group Inc. (GS - Analyst Report) has an earnings ESP of +4.80% and carries a Zacks Rank #3. It is scheduled to report its first quarter results on Apr 16.

Wells Fargo & Company (WFC - Analyst Report) has an earnings ESP of +1.15% and carries a Zacks Rank #3. Its first quarter release is scheduled on the same day as JPMorgan.

The earnings ESP for Prosperity Bancshares Inc. (PB - Analyst Report) is +1.19% and it carries a Zacks Rank #3. The company is scheduled to release its first quarter results on Apr 24.
 
In the banking sector, JPMorgan, which has exposure in almost all banking businesses, is set to kick off the first quarter earnings with Wells Fargo. Therefore, the release will be a significant indicator of performance in the key banking sector.

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