JPMorgan (JPM) 4th Quarter Earnings: What to Expect

Financial stocks have opened 2018 on a considerable run, sending the SPDR KBW Bank ETF (KBE) rising almost 6% to start the year, besting the 2.8% rise in the S&P 500 index.

Optimism about federal corporate tax overhaul has driven investors a reason to be exited. That, combined with reports that the Fed may raise interests three times this year, makes financials the go-to name for predictable returns. Among the biggest gainers has been JPMorgan Chase (JPM), which will report fourth quarter fiscal 2017 earnings results before the opening bell Friday.

With JPM stock now trading near 52-week highs, valuation concerns have emerged. Investors want assurances that the company can continue to deliver on both the top and bottom lines. But from my perspective, the bank, which has beaten Wall Street’s earnings estimates in eight straight quarters, should continue to post strong fundamental results, particularly amid the backdrop of improved monetary conditions.

For the three months that ended December, analysts expect the New York-based bank to earn $1.68 per share on revenue of $25.18 billion. This compares to the year-ago quarter when the bank earned $1.71 per share on $24.33 billion in revenue. For the full year, earnings are projected to rise 11.6% year over year to $6.91 per share, while full-year revenue of $102.08 billion would rise 3% year over year.

Beyond the top- and bottom-line results, analysts will look for improvements in the bank’s credit business, rising net interest margins (the equivalent of earnings) and stable net-charge-off rates. As for the latter, anything in-line with Q3 would be viewed as a positive. In the third quarter, the company delivered a beat on revenue which came to $26.2 billion, up 3% year over year, topping analyst consensus by almost one billion.

Thanks to diligent cost controls, Q3 earnings-per-share came to $1.76 per share, beating Street views by 11 cents. The bank benefited from a combination of factors, notably investment banking revenue, which came to $1.71 billion, topping estimates for $1.65 billion. These results helped offset the continued struggles in the trading business, which declined 27% year over year, missing even lowered expectations.

Wall Street doesn’t expect the trading revenues to bounce back this quarter, nor do analysts expect that weak trading revenue will have an adverse impact on fourth-quarter earnings, despite the significant importance to overall revenue. Combined with higher interest rates, a moderate improvement in lending (commercial and industrial, in particular) should fuel banking profits not only for this quarter but also for the rest of the year.

All told, with the bank benefiting from a combination of higher loans and higher rates, combined with the fact that customers are feeling better about their household economic situation, underscores the many routes JPMorgan has towards stronger growth. And this makes JPMorgan shares, despite trading at 52-week highs, less risky and a solid bet to rise in the quarters ahead.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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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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