A month has gone by since the last earnings report for JPMorgan Chase (JPM - Free Report) . Shares have added about 5.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is 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 the most recent earnings report in order to get a better handle on the important catalysts.
JPMorgan Q1 Earnings Beat on Higher Rates, Debt Underwriting
Higher rates and improved investment banking performance drove JPMorgan’s first-quarter 2019 earnings of $2.65 per share, which outpaced the Zacks Consensus Estimate of $2.32. Also, the figure was up 12% from the prior-year quarter.
Investment banking fees recorded 9% growth with 12% rise in advisory fees and 21% increase in debt underwriting income, partially offset by 23% decline in equity underwriting fees. Decent loan growth (driven largely by rise in wholesale and credit card loans) and higher interest rates supported net interest income.
Among other positives, credit card sales volume was up 10% and merchant processing volume grew 13%. Further, Commercial Banking average core balances jumped 2% and Asset Management average loan balances were up 10%.
As expected, both equity trading income (down 14%) and fixed income trading revenues (18% down) recorded a fall. Further, home lending business revenues declined 11% year over year, mainly due to lower net servicing revenues.
Operating expenses increased in the reported quarter. Also, provision for credit losses recorded a rise.
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 increased 5% to $9.2 billion.
Investment Banking, Higher Rates Aid Revenues, Costs Rise
Net revenues (as reported) were $29.1 billion, up 4% from the year-ago quarter. Rising rates, improving balance sheet and higher investment banking fees growth were the main reasons for the increase. These positives were partially offset by lower Markets revenues and mortgage banking fees. Also, the top line beat the Zacks Consensus Estimate of $28 billion.
Non-interest expenses (on managed basis) were $16.4 billion, up 2% from the year-ago quarter. The rise was primarily due to investments in business and auto loan depreciation.
Credit Quality Deteriorates
Provision for credit losses was $1.5 billion, up 28% year over year. The increase was mainly due to reserve builds in wholesale loan portfolios.
Also, net charge-offs grew 2% year over year to $1.4 billion. However, as of Mar 31, 2019, non-performing assets were $5.6 billion, down 12% from Mar 31, 2018.
Strong Capital Position
Tier 1 capital ratio (estimated) was 13.8% as of first-quarter end compared with 13.5% on Mar 31, 2018. Tier 1 common equity capital ratio (estimated) was 12.1% as of Mar 31, 2019, up from 11.8%. Total capital ratio was 15.7% (estimated) at the end of the year compared with 15.3% on Mar 31, 2018.
Book value per share was $71.78 as of Mar 31, 2019 compared with $67.59 on Mar 31, 2018. Tangible book value per common share came in at $57.62 at the end of March compared with $54.05 a year ago.
Management projects NII to be more than $58 billion, driven by higher interest rates and expected loan and deposit growth.
Operating expenses to be approximately $66 billion, up $2.7 billion from 2018 level. This additional spending includes $600 million of new technology investments and $1.6 billion for marketing, front-office hiring, new branches and a new headquarters building.
Net charge-offs are expected to be $5.5 billion, up from $4.9 billion recorded in 2018.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
At this time, JP Morgan has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. 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.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise JP Morgan has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.