JPMorgan Chase & Co.
) is scheduled to report its first quarter 2012 results before the
market opens on Friday, April 13. The Zacks Consensus Estimate for
the quarter is $1.17 per share, representing a year-over-year slump
of about 9%.
After profit declines for two straight quarters, we expect
JPMorgan to report impressive numbers this quarter as it is wont to
do. Marked recovery of the bond and equity market and consequent
revenue growth forms the basis of our assumption.
Though there are fundamental pressures like low interest rates
and sluggish loan demand growth on the sector, improving
macroeconomic elements, such as rising consumer spending and lower
unemployment, are expected to bring revenue stability for JPMorgan
and the other major U.S. banks.
However, JPMorgan has been fighting with poor capital market
revenues, low liquidity and a tough regulatory environment, which
might mar its results to some extent. However, reduction in
reserves for future losses, gradually improving retail banking
performance, and steady credit trends in its credit card business
are expected to be on the positive side.
Previous Quarter Performance
JPMorgan's fourth quarter earnings per share of 90 cents
marginally missed the Zacks Consensus Estimate of 92 cents. Results
were worse than $1.12 earned in the prior-year quarter. After a
long time, JPMorgan missed earnings expectation during the quarter
as it buckled under the weakness in the wider economy and the
fundamental pressures on the banking sector.
Earnings per share for the reported quarter included certain
significant nonrecurring items, such as a 9 cent loss from debit
valuation adjustment (
) gains in the Investment Bank, expense for additional litigation
reserves of 8 cents and a benefit from reduced loan loss reserves
of 11 cents. Excluding these items, JPMorgan's earnings came in at
96 cents per share.
Results for the reported quarter were primarily hurt by a
substantial decrease in revenue, which more than offset a slowdown
in provision for credit losses and lower non-interest expense.
Managed net revenue of $22.2 billion in the quarter was down 17%
from the year-ago quarter. The figure also compared unfavorably
with the Zacks Consensus Estimate of $23.0 billion.
Earnings Estimate Revisions - Overview
Ahead of the earnings release, Zacks Consensus Estimate for the
first quarter is slightly up. A significant upward trend in
estimate revision is also palpable, making the strength in the
stock more obvious.
We will now discuss the details of earnings estimate revisions
to substantiate why short-term investors should add this stock to
their investment kitty.
Agreement of Estimate Revisions
The estimate revision trend confirms that the majority of analysts
are in agreement about a better first quarter earnings at JPMorgan.
Of the 23 analysts covering the stock, 4 have increased their
estimates for the first quarter, while 2 have moved in the opposite
direction over the last 7 days.
Over the last 30 days, an absolute positive bias has been seen
with 17 analysts revising their estimates upward and only 2
Also, for full-year 2012, there were 4 upward estimate revisions
and 1 downward movement over the last 7 days.
Magnitude of Estimate Revisions
The Zacks Consensus Estimate for the first quarter headed north
only by a penny over the last 7 days. Over the last 30 days, the
estimate for the quarter increased 7 cents. For full-year 2012, the
estimate increased 2 cents to $4.82 per share over the last 7
JPMorgan's performance has been almost stable over the trailing
four quarters with respect to earnings surprises. The average
earnings surprise was a positive 6%. This implies that the company
has beaten the Zacks Consensus Estimate by the same magnitude over
the last four quarters.
The estimate revision trend indicates that fresh short-term
investment in this stock will be a good decision. Also, one can
consider a company like JPMorgan as value investment due to its
steady dividend-yielding nature.
Last month, the Federal Reserve released the fourth round of
stress test results, giving many big banks including JPMorgan the
green signal for deploying capital to shareholders. Consequently,
the company announced a 20% increase in its quarterly dividend to
30 cents per share. The company also announced a new share
This is the second time JPMorgan hiked its dividend since the
financial crisis. Prior to this, the company had increased its
quarterly dividend five-fold to 25 cents in March 2011.
Moreover, an investor with the appetite to absorb risks related
to market volatility should not be disappointed with an investment
in JPMorgan over the long haul. Though the stock is not trading for
less than what it is worth, JPMorgan's fundamentals remain highly
promising with a diverse business model and a strong balance
Also, from the risk perspective, as JPMorgan cleared the most
difficult stress test, it is for sure that the company will be able
to withstand another financial crisis.
Most importantly, despite the macro pressure on credit quality,
JPMorgan's credit metrics have been steadily improving since the
final quarter of 2009. Though provision continued to reflect
elevated losses in the mortgage and home equity portfolios, we are
impressed to see a modest improvement in delinquency trends and net
charge-offs. We expect credit quality to continue improving,
thereby providing more room for bottom-line improvement.
Though there are concerns related to its exposure to the
European economy, equity-centric activities in the U.S. are
expected to support JPMorgan's results in the upcoming quarters
with the continuous recovery of the capital markets.
Yet, net interest margin (
) continues to remain under pressure, affecting the traditional
banking businesses. Also, with the thrust of new banking
regulations, there will be pressure on fees, and loan growth could
Going by estimate revision trends and the magnitude of such
revisions, there is admittedly an upward pressure, though slight,
on the shares over the near term.
JPMorgan shares maintain a Zacks #3 Rank, which translates into
a short-term Hold' rating. Considering the company's business
model and fundamentals, we also have a long-term "Neutral"
recommendation on the stock.
As JPMorgan is a banking giant with exposure in almost all
banking businesses and is one of the first two important bankers to
kick start first quarter results, the release is going to be a
significant indicator of performance in the key banking sector.
Wells Fargo & Company
) has advanced its earnings release date this quarter by about a
week and will report on the same day with JPMorgan.
Close on the heels of JPMorgan and Wells Fargo, the other major
) is scheduled to report on April 16,
Goldman Sachs Group Inc.
) on April 17, and
Bank of America Corporation
) on April 19.
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