JPMorgan Chase & Co.
) is scheduled to release its first-quarter 2014 results
tomorrow, Apr 11, before the opening bell. Too many questions
linger in investors' minds this time around given the tough
backdrop that banks have been enduring since the year started.
After all, this banking superstar holds the key to investors'
confidence in the industry.
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In the fourth quarter, the banking behemoth managed to report
earnings and beat market expectations, after covering huge legal
costs. In other words, it survived the pressures only because of
its sufficient legal reserves.
The banking giant came out with earnings of $1.30 per share after
shelling out legal costs to deliver a 4% surprise. The strength
of its legal reserves made this return to positive earnings
Will JPMorgan be able to maintain this turnaround story this time
too after combating the challenges that the industry witnessed
during the quarter? Let's see what factors might have sketched
the earnings report this time around.
How Things Have Shaped Up?
JPMorgan continued to hit headlines, but not always for wrong
doings and related settlements like in the past few quarters.
However, another set of dampeners - dreary consumer and corporate
activities, soft trading volumes and sluggish mortgage banking
activities - are likely to drag earnings in this report.
Dumping unprofitable businesses and concentrating on those with
strong potential should be of some help. Vending of the physical
commodities business for $3.5 billion last month brought some
much-needed proceeds that should ultimately translate into better
key numbers for the bank.
Another defensive action - workforce reduction - has become the
bank's key instrument to deliver impressive bottom-line numbers.
In February, the company announced that it would lay off 8,000
workers (about 3% of its total workforce) in its consumer and
mortgage banking segments this year. Last year, JPMorgan already
cut 16,500 jobs in these segments.
However, these efforts might not be able to make up for the
shortfall that it has been witnessing on the top line part. We
don't expect any significant increase in interest income due to
sluggish loan growth and a nagging low rate environment. If any
improvement is seen, it will be solely due to the company's
strength across product lines. But we don't expect this growth to
be significant enough to offset all downsides.
Most importantly, this banking giant failed to impress analysts
with its level of activities during the quarter. The weakness
surrounding the industry and the company's highly sensitive
financials to such negatives forced many analysts to
significantly lower their earnings estimates. The Zacks Consensus
Estimate has moved down by 2.1% to $1.41 per share over the last
7 days, as the tendency for a downward estimate revision was more
Our proven model does not conclusively show that JPMorgan is
likely to beat the Zacks Consensus Estimate in the first quarter.
That is because a stock needs to have both a positive
and a Zacks Rank #3 (Hold) or better for this to happen.
Unfortunately, this is not the case here as elaborated below.
The Earnings ESP for JPMorgan is -2.13%. This is because
the Most Accurate estimate stands at $1.38 while the Zacks
Consensus Estimate is higher at $1.41.
JPMorgan's Zacks Rank #3 increases the predictive power of ESP.
But we also need to have a positive ESP to be confident of an
earnings surprise call.
Stocks That Warrant a Look
Here are a few bank stocks that you may want to consider, as our
model shows that these have the right combination of elements to
post an earnings beat this quarter.
Wintrust Financial Corp.
) has an earnings ESP of +3.03% and carries a Zacks Rank #2
(Buy). It is scheduled to report results on Apr 15.
The PNC Financial Services Group, Inc.
) has an earnings ESP of +2.41% and carries a Zacks Rank #3. It
is scheduled to report results on Apr 16.
The earnings ESP for
) is +6.82% and it carries a Zacks Rank #2. The company is
expected to release results on Apr 23.
In the banking sector, JPMorgan will be kicking off the
first-quarter earnings season with
Wells Fargo & Co.
). Therefore, the release will give a good sense of how taxing or
encouraging the quarter has been for the key banking sector.