As evidenced by the 30% rise in the Financial Select Sector SPDR Fund (XLF), bank stocks performed relatively well in 2019, despite weaker economic growth and the dovish Fed, which cut interest rates throughout the year.
Lower interest rates makes it more difficult for banks to make money on loans. But that hasn’t stopped JPMorgan Chase (JPM) from beating Wall Street revenue and earnings estimates in three straight quarters. The money-center bank is set to report fourth quarter fiscal 2019 earnings results before the opening bell Tuesday. The bank’s consistency was noticeable last quarter, during which it posted a 15% jump in return on equity.
On Tuesday the market is eager to learn whether JPMorgan’s quarterly numbers and outlook for 2020 will be as upbeat as the stock’s performance (up 37% over the past year) suggests. Investors have applauded the banks decision to take on the discount brokers with its new commission-free arrangement. It would appear JPMorgan’s investment banking division has surpassed its "traditional" banking segment in terms of future growth. Can this continue?
For the three months that ended December, analysts expect the New York-based bank to earn $2.34 per share on revenue of $27.92 billion. This compares to the year-ago quarter when earnings came to $1.98 per share on revenue of $26.8 billion. For the full year, ending in December, earnings are projected to rise 16.4% year over year to $10.48 per share, while full-year revenue of $116.07 billion would rise 4.1% year over year.
In the third quarter, JPMorgan beat on both the top and bottom lines, posting a record third-quarter revenue, which rose 8% to $30.1 billion, topping the $28.5 billion analysts were looking for. The bottom line was just as impressive, coming in 8% higher year over year to $9.1 billion, or $2.68 per share, above estimates of $2.45 per share. The bank noted the strength in consumer banking operations, namely home loans, autos and credit cards that helped offset the impact of lower interest rates.
As various times of the year, we have touted how strong the consumer has been, thanks to growth in wages and spending, combined with strong balance sheets and low unemployment levels. This was particularly evident in JPMorgan’s Q3 results as it benefited from not only double-digit growth in credit card sales, merchant processing volumes continues to rise. I expect similar (to slightly better) results on Tuesday from JPMorgan, particularly given the strong holiday shopping season we have witnessed.
While it’s reasonable to ask where growth expectations for 2020 should be placed and what reasonable multiple bank stocks deserve in this low-rate environment, while strong bank profits are not expected, JPMorgan can set the high standard. The bank’s diversification is a key attraction during this bumpier period for banking. And while these shares are no longer as undervalued as they were six months ago, JPMorgan’s established track record of results and outperformance makes it tough to part with this winner.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.