JPMorgan Earnings Preview: Don't Expect Any Surprises
JPMorgan Chase (NYSE: JPM) will report its first quarter results on Friday, April 11, before market open. The company is expected to earn $1.41 per share on $24.55 billion.
The last time JPMorgan reported its earnings was on January 14 when its earnings per share of $1.30 fell short of the consensus estimate by five cents. Revenue also fell short of expectations at $23.2 billion, as analysts were expecting the bank to collect $23.81 billion.
The Sell side reaction to JPMorgan's results were mixed, at best.
Analysts at FBR reiterated a Market Perform rating and noted that the company will continue operating in an environment in which loan growth expectations remain tepid, margins will hold steady and one-time expenses will continue to weigh on earnings.
Analysts at Jefferies, on the other hand, reiterated a Buy rating and noted that a more upbeat investment banking unit and trading outlook offsets a slightly higher starting point for expenses. Additionally, JPMorgan is the cheapest stock in the banking sector and shares will appreciate as the company settles its legal issues.
The debate between sell-side analysts continues heading in to the first quarter earnings.
Keefe: Not expecting any surprises, changes at expense base still a wild-card
In a note to clients on April 8, Frederick Cannon, analyst at Keefe, Bruyette & Woods explained that JPMorgan's earnings are somewhat known following the intra-quarter investor day.
Cannon explained that JPMorgan's management has already disclosed that total trading-related revenues were tracking 15 percent lower than the first quarter 2013 level going into the end of February. Mortgage origination volumes have started the year on a sour note due to the challenging environment.
Cannon also explained that changes in the company's expense base and/or level of loan loss provisioning could drive earnings per share growth positively or negatively.
Cannon is forecasting JPMorgan will earn $1.38 per share on revenue of $24.203 billion.
Deutsche Bank: Positive into the quarter
Matt O'Connor, research analyst at Deutsche Bank holds a positive bias of JPMorgan going in to the earnings announcement.
In a note to clients on April 2, O'Conner explained that JPMorgan is the only bank to have settled its mortgage issues with the State attorney general and Department of Justice. As such, concerns over legal and regulatory issues may be “mitigated.”
Longer-term, O'Conner is positive over the bank's prospects for two reasons.
Firstly, if rates rise, JPMorgan could monetize its investments made in consumer and commercial banking.
Additionally, share buybacks should continue at a “moderate” pace of a three percent net reduction in shares per year over time, which will play a role in boosting the bank's earnings per share to $8 for full year 2016/2017.
O'Conner is also positive on Fifth Third Bancorp, PNC Financial Services Group and cautious on UBS.
O'Conner is forecasting JPMorgan to earn $1.35 per share.
Macquarie: Upgrading shares going into earnings
David Konrad, analyst at Macquarie Capital believes that JPMorgan could benefit from a sector rotation in the market and provides investors with one of the cheapest ways to gain exposure to an improving US and European economies.
According to Konrad, JPMorgan is likely to increase its share buyback program and potential special dividends, reversing a pattern of being less active in recent years due to legal issues and losses stemming from the “London Whale.”
Konrad explained that the bank's business mix will improve with the Asset Management division contributions increasing from 8.5 percent of core earnings in 2012 to 11 percent in 2015.
Despite Konrad's lower estimates for the industry, the analyst is bumping up JPMorgan's 2014 and 2016 estimates due to expectations for lower NCOs and buyback activities. Konrad is expecting the bank to earn $6.25 in 2015 (up from a previous estimate of $6.10) and $6.85 in 2016 (up from a previous estimate of $6.75).
Bottom line, JPMorgan's first quarter estimates are “more visible and higher quality with minimal reserve release.”
Konrad is forecasting JPMorgan will earn $1.37 in the quarter.
Shares are Outperform rated with a price target raised to $68 from a previous $62.
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