JPMorgan Chase (JPM), the nation’s largest bank by deposits and revenue, is set to report third quarter fiscal 2020 earnings results Tuesday before the opening bell.
Bank stocks have rebounded considerably over the past week, driven by a 4% rise in the Financial Select Sector SPDR Fund (XLF). With with the XLF still down 18% year to date, this underscores the level of concern the market still has about the state of the economic recovery and the impact the pandemic has had on the consumer. With the nation is still dealing with high unemployment, combined with rising COVID-19 cases in several states, the level of doubt is even more glaring for JPMorgan, which has seen its stock fall 27% on the year.
JPMorgan’s Q3 earnings are expected to be much lower in 2020 than they were a year ago. But that shouldn't be a surprise, considering the coronavirus-induced recession the nation is facing, coupled with business closures. Consensus estimates calls for revenue to decline 6%, which would represent the biggest decline in the past five years. EPS is expected to fall 27%. Some analysts believe the negative sentiment towards bank stocks is overdone.
On Tuesday, among other areas, investors will focus on JPMorgan’s mortgage business which should be a source of strength due to the booming housing market. Auto applications should also be strong for similar reasons. Fundamentally, analysts will also focus on the bank’s credit quality not only to look for signs of what the next several quarters might look like, but also to assess whether now is the time to buy JPMorgan shares.
For the three months that ended September, analysts expect the New York-based bank to earn $2.18 per share on revenue of $28.26 billion. This compares to the year-ago quarter when earnings came to $2.68 per share on revenue of $30.06 billion. For the full year, ending in December, earnings are projected to decline 42.5% year over year to $6.16 per share, while full-year revenue of $116.9 billion would decline 2% year over year.
The quarterly and full-year projections are anything but inspiring. The drastic toll the coronavirus pandemic has had on the consumer and on business, devastating both supply and demand, has disrupted the entire sector. But JPMorgan, which delivered mixed results in Q2, can offer good insight of what the market should expect from businesses throughout the end of the year.
In the second quarter, JPMorgan’s businesses headed in two different directions with community and consumer banking suffering materially from weak consumer spending, which, when combined with a low-interest rate environment, pressured revenues. This was partially offset by improved conditions on the corporate and markets side of the business which lead to top-line beat. Fixed Income Markets revenue of $7.3 billion surged 99% year over year.
The bank also enjoyed an almost 40% surge in Equity Markets revenue, reaching $2.4 billion, thanks to strong client activity in derivatives and Cash Equities. All of which led to $4.7 billion in Q2 profit, which was remarkable despite having to build some $9 billion of credit reserves. JPMorgan’s industry-leading profitability and strong balance sheet has long been a reason for its outperformance during the pandemic-induced economic crisis. As such, investors will undoubtably look for similar-to-better operating results on Tuesday.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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