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Should You Buy JPMorgan Chase (JPM) Stock Ahead of Earnings?

Shares of JPMorgan Chase JPM gained about 2.3% on Tuesday, just a few days before it will-alongside fellow banking giants Citigroup C and Wells Fargo WFC -kick off Q1 earnings season with the release of its latest quarterly financial report. Investors will want to keep a close eye on this finance bellwether in the lead up to, and aftermath of, its pivotal earnings announcement.

JPM has outpaced the S&P 500 over the past year, but interest rate uncertainty has created for big financials lately. Yields on the benchmark 10-year Treasury bond have moved sideways over the last two months, marking a change to the uptrend in treasury yields that had been in place since September.

Regardless, the Fed appears ready to continue tightening its policies, and lingering uncertainty is really related to whether the central bank will announce four rates hikes, or more, this year. Bank investors will continue to monitor this as the industry clamors for the earnings growth catalyst that is a higher benchmark borrowing rate.

But investors will also need to monitor the results of JPMorgan Chase, with its interesting mix of investment and commercial banking serving as an important indicator of the finance sector's health.

Latest Outlook and Valuation

Based on our latest Zacks Consensus Estimates, we expect JPMorgan to report earnings of $2.28 per share and total revenue of $27.5 billion. These results would represent year-over-year growth rates of 38.2% and 11.6%, respectively.

Heading into the report, JPM is trading with a Forward P/E of 12.1, which is basically in line with the "Banks - Major Regional" industry average of 11.8. JPMorgan Chase has traded as high as 15.7x forward 12-month earnings within the past 52 weeks, and its median earnings multiple over this timeframe is about 12.7x.

Earnings ESP Whispers

Investors will also want to anticipate the likelihood that JPMorgan surprises investors with better-than-anticipated earnings results. For this, we turn to our Earnings ESP figure.

Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst estimates. This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.

A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.

Just a few days ahead of its report, JPM is sporting a Zacks Rank #3 (Hold) and an Earnings ESP of -0.8%. This is because the company's Most Accurate Estimate for earnings sits at $2.26 per share, meaning that the most recent analyst estimates have been lower than the consensus. In other words, our model is not conclusively calling for a beat.

Surprise History

Another important thing to consider ahead of JPMorgan's report is the company's history of earnings surprises and the effect that these surprises have had on share prices. JPMorgan has met or surpassed earnings estimates in each of the trailing nine quarters, but its bottom-line results have not always translated into upward momentum for the stock.

We judge the price effect of these earnings beats by comparing the closing price of the stock two days before the report and two days after the report. Over the course of JPM's recent streak, the stock has turned positive just four times during this timeframe in each respective quarter.

Want more market analysis from this author? Make sure to follow @Ryan_McQueeneyon Twitter!

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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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