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JPMorgan, Citi Stage Breakouts Ahead of Bank Earnings Slate

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When it comes to stock market movements, earnings are the ultimate driver.

The second-quarter earnings season unofficially kicks off this week. Early reports have already begun to trickle in, with the focus now turning to the major bank results on Friday.

The setup heading into the season is favorable; S&P 500 earnings are projected to grow 8.6% from the year-ago period on 4.7% higher revenues. That would mark the highest EPS growth rate in about two years. The theme of accelerating earnings growth and continued resilience that we’ve seen in recent periods appears likely to have persisted during the latest quarter.

Another favorable development is the revisions trend, as estimates for Q2 earnings have remained fairly steady leading into the results. In fact, estimates for S&P 500 EPS fell by the least amount when compared to the same timeframe during the latest quarters. In other words, analysts haven’t drifted too far from their projections.

For the most part, financial stocks have fared well in 2024. In terms of the broader Zacks Finance sector, earnings in the second quarter are expected to have risen 9% year-over-year on 5.8% higher revenues, which follows the 11.8% earnings growth (+7.3% higher revenues) during the first quarter.

Digging a bit deeper, the Zacks Banks – Major Regional industry group has more than held its own, slightly outperforming thus far this year:

Zacks Investment Research
Image Source: Zacks Investment Research

Despite the impressive performance, stocks in this industry remain attractive from a valuation standpoint:

Zacks Investment Research
Image Source: Zacks Investment Research

Big Banks Breakout Ahead of Earnings Announcements

Citigroup (C - Free Report) hit a 52-week high during Wednesday’s session, a good sign leading up to the bank’s second-quarter results. Adding to the bullish theme, the company surpassed earnings estimates in each of the past six quarters. Citigroup has delivered a trailing four-quarter average earnings beat in excess of 20%.

Citi shares have risen more than 30% this year:

StockCharts
Image Source: StockCharts

Estimates for the second quarter have declined slightly over the past few months. Analysts now expect Citi to post earnings of $1.40/share, translating to a 2.19% improvement versus the same quarter last year. Revenues are projected to increase 2.77% to $19.97 billion.

Megabank JPMorgan Chase (JPM - Free Report) is also rallying ahead of its Q2 announcement. The stock touched an all-time high yesterday before paring some of the gains. The company has exceeded the earnings mark in each of the last seven quarters. JPM stock has rewarded investors with a 25% return so far in 2024:

StockCharts
Image Source: StockCharts

Analysts have increased their Q2 EPS estimates for JPM by 2.44% in the past 60 days to $4.19/share, which would reflect a 4.12% decline relative to the year-ago period.

Zacks Investment Research
Image Source: Zacks Investment Research

What the Zacks Model Unveils

The Zacks Earnings ESP (Expected Surprise Prediction) seeks to find companies that have recently seen positive earnings estimate revision activity. The idea is that this recent information can serve as a more accurate predictor of the future, which can give investors a leg up during earnings season.

The technique has proven to be quite useful in finding positive surprises. In fact, when combining a Zacks Rank #3 or better with a positive Earnings ESP, stocks delivered a positive surprise 70% of the time according to our 10-year back test.

JPM stock is a Zacks Rank #3 (Hold) and boasts a +0.57% Earnings ESP. Another beat may be in the cards when the company reports ahead of the opening bell on Friday morning.  


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