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JPMorgan Chase & Co. (JPM) Up 3.9% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for JPMorgan Chase & Co. (JPM - Free Report) . Shares have added about 3.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is JPMorgan Chase & Co. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
JPMorgan’s Q2 Earnings Beat on Reserve Release, IB Fees
Large reserve releases, solid IB performance and modest rise in loan demand drove JPMorgan’s second-quarter 2021 earnings of $3.78 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.10.
Results included credit reserve releases. Excluding this, earnings amounted to $3.03 per share. The company had earned $1.38 in the prior-year quarter.
The company’s top line was hurt by weaknesses in trading and mortgage banking businesses. Lower interest rates too were a major headwind. As projected by the CEO Jamie Dimon in mid-June at an investors conference, markets revenues were “north of $6 billion” at $6.8 billion, down 30% year over year. Fixed income markets revenues plunged 44% due to lower revenues across products, while equity markets revenues grew 13% on the back of solid performance across products.
Mortgage fees and related income decreased 40% to $551 million. Despite modest rise in loan balance (consumer, credit cards and wholesale portfolios) during the quarter, flattening of the yield curve and low interest rate environment hurt the bank’s interest income.
Operating expenses witnessed a rise. Further, Commercial Banking average loan balances were down 12% year over year.
During the quarter, the company reported net reserve releases of $3 billion. In a statement, Dimon said, “This quarter we once again benefited from a significant reserve release as the environment continues to improve, but as we have said before, we do not consider these core or recurring profits. Our earnings, not including the reserve release, were $9.6 billion.”
Now coming to IB performance, equity and debt underwriting fees rose 9% and 26%, respectively. Continued stellar deal making activities during the quarter led JPMorgan to record a 52% jump in advisory fees. Hence, investment banking fees grew 25% from the prior-year quarter. This was well above management’s expectation of “up 20%.”
Among other positives, Asset & Wealth Management average loan balances grew 21% from the year-ago quarter. Credit card sales volume jumped 51%, reflecting steadily rising consumer confidence and economic outlook.
Overall performance of JPMorgan’s business segments, in terms of net income generation, was decent. All segments, except Corporate & Investment Banking and Corporate, reported improvement in net income on a year-over-year basis.
Net income increased substantially from the prior-year quarter to $11.9 billion.
Weak Trading Hurt Revenues, Costs Rise
Net revenues as reported were $30.5 billion, down 8% from the year-ago quarter. The decline was largely owing to fall in trading and mortgage banking fees, and lower interest rates, while higher IB income was an offsetting factor. The top line beat the Zacks Consensus Estimate of $30 billion.
Net interest income declined 8% year over year to $12.7 billion.
Non-interest income also declined 8% to $17.7 billion, mainly due to dismal mortgage banking and principal transactions performance.
Non-interest expenses (on managed basis) were $17.7 billion, up 4% from the year-ago quarter. The increase was mainly due to continued investments in business including technology and front office hiring.
Credit Quality Improves
Provision for credit losses was a net benefit $1.3 billion against a provision of $10.5 billion in the prior-year quarter. Further, net charge-offs (NCOs) plunged 53% to $734 million.
As of Jun 30, 2021, non-performing assets were $9.8 billion, up 1% from Jun 30, 2020 level.
Solid Capital Position
Tier 1 capital ratio (estimated) was 15.1% at second quarter-end compared with 14.3% on Jun 30, 2020. Tier 1 common equity capital ratio (estimated) was 13.0%, up from 12.4%. Total capital ratio was 17.1% (estimated) compared with 16.7% as of Jun 30, 2020.
Book value per share was $84.85 as of Jun 30, 2021 compared with $76.91 in the corresponding period of 2020. Tangible book value per common share was $68.91 at the end of June, up from $61.76.
Share Repurchase Update
During the reported quarter, JPMorgan repurchased shares worth $5.9 billion. It must be noted that the company resumed buybacks following approval for the same from the Federal Reserve in December 2020.
2021 Outlook
Management expects NII to be $52.5 billion. The company is sitting on a huge stockpile of cash worth approximately $500 billion, thereby putting it in a strong position to benefit from higher rates.
Adjusted operating expenses are projected to be approximately $71 billion, up from prior guidance of $70 billion. The year-over-year rise is largely due to “revenue and volume-related expenses” and the impact of foreign exchange as well as expenses related to the strategic acquisitions.
Card NCOs are projected to be less than 2.5%.
Segment Outlook Under Normalized Environment
For CCB, ROE is projected to be nearly 25% and overhead ratio of 50-55%. Further, NCOs are likely to be higher in the second half of 2021 compared with the first half.
For CIB, ROE is expected to be approximately 16% and revenues roughly $43 billion, with overhead ratio of nearly 54%.
Management now expects gross IB revenues to be $4 billion in the long-term. The company maintained long-term target of $1 billion each for expansion in markets revenues and international revenues.
For CB, ROE is expected to be approximately 18% and overhead ratio of nearly 40%.
For AWM, revenue growth is expected to be 5% and both pre-tax margin as well as ROE of roughly 25%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
VGM Scores
Currently, JPMorgan Chase & Co. has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, JPMorgan Chase & Co. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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JPMorgan Chase & Co. (JPM) Up 3.9% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for JPMorgan Chase & Co. (JPM - Free Report) . Shares have added about 3.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is JPMorgan Chase & Co. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
JPMorgan’s Q2 Earnings Beat on Reserve Release, IB Fees
Large reserve releases, solid IB performance and modest rise in loan demand drove JPMorgan’s second-quarter 2021 earnings of $3.78 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.10.
Results included credit reserve releases. Excluding this, earnings amounted to $3.03 per share. The company had earned $1.38 in the prior-year quarter.
The company’s top line was hurt by weaknesses in trading and mortgage banking businesses. Lower interest rates too were a major headwind. As projected by the CEO Jamie Dimon in mid-June at an investors conference, markets revenues were “north of $6 billion” at $6.8 billion, down 30% year over year. Fixed income markets revenues plunged 44% due to lower revenues across products, while equity markets revenues grew 13% on the back of solid performance across products.
Mortgage fees and related income decreased 40% to $551 million. Despite modest rise in loan balance (consumer, credit cards and wholesale portfolios) during the quarter, flattening of the yield curve and low interest rate environment hurt the bank’s interest income.
Operating expenses witnessed a rise. Further, Commercial Banking average loan balances were down 12% year over year.
During the quarter, the company reported net reserve releases of $3 billion. In a statement, Dimon said, “This quarter we once again benefited from a significant reserve release as the environment continues to improve, but as we have said before, we do not consider these core or recurring profits. Our earnings, not including the reserve release, were $9.6 billion.”
Now coming to IB performance, equity and debt underwriting fees rose 9% and 26%, respectively. Continued stellar deal making activities during the quarter led JPMorgan to record a 52% jump in advisory fees. Hence, investment banking fees grew 25% from the prior-year quarter. This was well above management’s expectation of “up 20%.”
Among other positives, Asset & Wealth Management average loan balances grew 21% from the year-ago quarter. Credit card sales volume jumped 51%, reflecting steadily rising consumer confidence and economic outlook.
Overall performance of JPMorgan’s business segments, in terms of net income generation, was decent. All segments, except Corporate & Investment Banking and Corporate, reported improvement in net income on a year-over-year basis.
Net income increased substantially from the prior-year quarter to $11.9 billion.
Weak Trading Hurt Revenues, Costs Rise
Net revenues as reported were $30.5 billion, down 8% from the year-ago quarter. The decline was largely owing to fall in trading and mortgage banking fees, and lower interest rates, while higher IB income was an offsetting factor. The top line beat the Zacks Consensus Estimate of $30 billion.
Net interest income declined 8% year over year to $12.7 billion.
Non-interest income also declined 8% to $17.7 billion, mainly due to dismal mortgage banking and principal transactions performance.
Non-interest expenses (on managed basis) were $17.7 billion, up 4% from the year-ago quarter. The increase was mainly due to continued investments in business including technology and front office hiring.
Credit Quality Improves
Provision for credit losses was a net benefit $1.3 billion against a provision of $10.5 billion in the prior-year quarter. Further, net charge-offs (NCOs) plunged 53% to $734 million.
As of Jun 30, 2021, non-performing assets were $9.8 billion, up 1% from Jun 30, 2020 level.
Solid Capital Position
Tier 1 capital ratio (estimated) was 15.1% at second quarter-end compared with 14.3% on Jun 30, 2020. Tier 1 common equity capital ratio (estimated) was 13.0%, up from 12.4%. Total capital ratio was 17.1% (estimated) compared with 16.7% as of Jun 30, 2020.
Book value per share was $84.85 as of Jun 30, 2021 compared with $76.91 in the corresponding period of 2020. Tangible book value per common share was $68.91 at the end of June, up from $61.76.
Share Repurchase Update
During the reported quarter, JPMorgan repurchased shares worth $5.9 billion. It must be noted that the company resumed buybacks following approval for the same from the Federal Reserve in December 2020.
2021 Outlook
Management expects NII to be $52.5 billion. The company is sitting on a huge stockpile of cash worth approximately $500 billion, thereby putting it in a strong position to benefit from higher rates.
Adjusted operating expenses are projected to be approximately $71 billion, up from prior guidance of $70 billion. The year-over-year rise is largely due to “revenue and volume-related expenses” and the impact of foreign exchange as well as expenses related to the strategic acquisitions.
Card NCOs are projected to be less than 2.5%.
Segment Outlook Under Normalized Environment
For CCB, ROE is projected to be nearly 25% and overhead ratio of 50-55%. Further, NCOs are likely to be higher in the second half of 2021 compared with the first half.
For CIB, ROE is expected to be approximately 16% and revenues roughly $43 billion, with overhead ratio of nearly 54%.
Management now expects gross IB revenues to be $4 billion in the long-term. The company maintained long-term target of $1 billion each for expansion in markets revenues and international revenues.
For CB, ROE is expected to be approximately 18% and overhead ratio of nearly 40%.
For AWM, revenue growth is expected to be 5% and both pre-tax margin as well as ROE of roughly 25%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
VGM Scores
Currently, JPMorgan Chase & Co. has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, JPMorgan Chase & Co. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.