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JPMorgan (JPM) Stock: Buy, Sell, or Hold Before Q2 Earnings?
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JPMorgan (JPM - Free Report) is slated to kick-start second-quarter 2024 earnings on Jul 12. The largest American bank’s earnings draw a lot of interest from investors because of its presence in almost all the finance sector businesses, thus offering insight into how the quarterly performance of other banks is likely to be.
JPM’s first-quarter 2024 performance was impressive despite industry-wide operating challenges. This time, we believe the company’s performance will likely remain robust. The Zacks Consensus Estimate for second-quarter revenues of $45.05 billion suggests 9.1% year-over-year growth.
On the other hand, rising provisions for credit losses and higher operating expenses are likely to have hampered JPMorgan’s bottom-line growth. In the past seven days, the consensus estimate for earnings for the to-be-reported quarter has been revised almost 1% upward to $4.19, indicating a 4.1% decline from the prior-year quarter.
Image Source: Zacks Investment Research
JPMorgan has an impressive earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, with an average beat being 12.31%.
Image Source: Zacks Investment Research
Key Factors to Influence JPMorgan’s Q2 Performance
Net Interest Income: JPMorgan is expected to have witnessed modest gains from high interest rates. As the Federal Reserve kept the interest rates steady during the quarter (at a 22-year high of 5.25-5.5%), the company is less likely to have recorded significant improvement in net interest income (NII). Also, the inverted yield curve in the June-ended quarter and high funding costs are expected to have weighed on NII growth.
However, the stabilizing macroeconomic backdrop and the expectations of Fed easing later this year are likely to have offered some support to the lending scenario. Per the Fed’s latest data, the demand for commercial and industrial, real estate and consumer loans was decent in the first two months of the quarter.
The Zacks Consensus Estimate for NII (reported) of $22.83 billion suggests a 4.8% increase. Our estimate for NII implies a rise of 5.2% to $22.9 billion.
Markets Revenues: Client activity was decent in the second quarter. The likelihood of a soft landing of the U.S. economy, gradually cooling inflation and clarity on the Fed rate cut path drove the client activity. Nonetheless, volatility was low in equity markets and other asset classes, including commodities, bonds and foreign exchange. So, JPMorgan is likely to have recorded decent growth in markets revenues (comprising nearly 20% of the company’s total revenues) this time.
The consensus estimate for equity markets revenues of $2.56 billion suggests a 4.2% rise on a solid equity market performance during the quarter. The Zacks Consensus Estimate for fixed-income markets revenues of $4.77 billion indicates 3.5% growth.
Our estimates for equity markets revenues and fixed-income markets revenues stand at $2.29 billion and $4.74 billion, respectively.
Management expects markets revenues to improve slightly more than the previously mentioned mid-single-digit growth.
Investment Banking (IB) Fees: A rebound in global mergers and acquisitions (M&As) in the second quarter of 2024 after subdued 2023 and 2022 is expected to have immensely supported JPMorgan’s IB fees. Both deal value and volume witnessed a remarkable comeback driven by solid financial performance, fading recession risks, buoyant markets and expected rate cuts this year. Yet, tough scrutiny by antitrust regulators and lingering geopolitical tensions were headwinds. JPMorgan’s leadership in the space is likely to have offered support to advisory fees.
Likewise, the IPO market activity was decent in the second quarter, given the impressive equity market performance. This also drove some solid activity in follow-up equity issuances. Further, bond issuance volume was boosted by lower yields, a better operating backdrop compared with last year, election-related uncertainty and a resurgence in M&As. Thus, growth in JPMorgan’s underwriting fees (accounting for almost 60% of total IB fees) is expected to have been solid during the to-be-reported quarter.
The consensus estimate for IB revenues (in the Corporate & Investment Banking segment) is pegged at $2.14 billion, suggesting a jump of 26.6%. Our estimate for the metric stands at $1.92 billion.
Management expects IB revenues to increase in the range of 25-30% on a year-over-year basis, driven by robust capital markets performance.
Mortgage Banking Fees: Though the mortgage rates have declined from the peak of more than 8%, it is still considerably high at almost 7%. Though the central bank has signaled a 25-basis point cut in rates this year, the demand for mortgages didn’t improve much in the second quarter of 2024. Due to the home price appreciation and lower supply, mortgage origination volume remained weak too. Yet, supported by lower rates, there was a modest rise in refinancing activities. This is likely to have aided JPMorgan’s mortgage banking income.
The consensus estimate for mortgage fees and related income of $298.8 million implies a 7.5% rise from the prior-year quarter. Our estimate for the metric stands at $284.5 million.
Expenses: JPMorgan’s plan of entering new markets by opening branches, which is already on track, along with inorganic expansion efforts, is likely to have resulted in an increase in operating expenses in the second quarter. Also, investments in technology to strengthen digital offerings might have led to higher costs.
Our estimate for non-interest expenses stands at $23.07 billion, implying an increase of 10.8% on a year-over-year basis.
Asset Quality: JPMorgan is likely to have set aside a substantial amount of money for potential delinquent loans (mainly commercial loan defaults), given the expectations of an economic slowdown. Our estimate for provision for credit losses is pegged at $2.58 billion.
The Zacks Consensus Estimate for non-performing loans (NPLs) of $8.42 billion implies a 15.8% increase year over year. The consensus estimate for non-performing assets (NPAs) of $8.92 suggests a 13.8% rise. Our estimates for NPAs and NPLs are pegged at $8.22 billion and $7.65 billion, respectively.
What Our Model Reveals
Our proven model predicts an earnings beat for JPMorgan this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. That is the case here, as you can see below.
JPMorgan has an Earnings ESP of +0.57%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
JPMorgan was among the top three performing banks on the S&P 500 index in the first half of 2024, with the other two lenders being Citigroup (C - Free Report) and Wells Fargo (WFC - Free Report) . All three stocks have outperformed the S&P 500 index.
First Half 2024 Price Performance Image Source: Zacks Investment Research
C and WFC are scheduled to announce second-quarter results on the same day as JPM.
Now, let’s look at the value JPMorgan offers investors at current levels.
Currently, JPM is trading at 12.42X forward 12 months earnings, above its five-year median of 11.82X. Meanwhile, the industry’s forward earnings multiple sits at 11.43X. The company’s valuation looks somewhat stretched compared with its own range and the industry average.
Price-to-Earnings (forward 12 Months) Image Source: Zacks Investment Research
Investment Considerations: Balancing Risk and Reward
JPMorgan is well-poised to benefit from its scale and size, and leverage its leading position in several businesses. The acquisition of First Republic Bank last year continues to support its financials. It is also expanding its footprint in new regions and plans to capitalize on cross-selling opportunities.
JPM intends to increase its quarterly dividend for the second time this year as it cleared the 2024 stress test. The company also authorized a new share repurchase program.
Yet, the volatile nature of the capital markets business will likely keep JPM’s fee income growth challenging. Mounting expenses and subdued mortgage banking business are other concerns.
Our Take
The resurgence of capital markets business (especially investment banking or IB business), high interest rates, decent loan demand and strategic acquisitions paint a positive picture for the bank ahead of second-quarter earnings.
Nonetheless, concerns over rising expenses because of investment in technology and branch expansion efforts, weakening asset quality and stretched valuation warrant caution for potential investors.
While JPMorgan's long-term prospects remain promising as the banking industry continues to regain momentum, investors should not rush in to buy the stock. Those who already have the JPM stock in their portfolio can hold on to it because the country’s largest bank is less likely to disappoint, as indicated by its Earnings ESP.
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JPMorgan (JPM) Stock: Buy, Sell, or Hold Before Q2 Earnings?
JPMorgan (JPM - Free Report) is slated to kick-start second-quarter 2024 earnings on Jul 12. The largest American bank’s earnings draw a lot of interest from investors because of its presence in almost all the finance sector businesses, thus offering insight into how the quarterly performance of other banks is likely to be.
JPM’s first-quarter 2024 performance was impressive despite industry-wide operating challenges. This time, we believe the company’s performance will likely remain robust. The Zacks Consensus Estimate for second-quarter revenues of $45.05 billion suggests 9.1% year-over-year growth.
On the other hand, rising provisions for credit losses and higher operating expenses are likely to have hampered JPMorgan’s bottom-line growth. In the past seven days, the consensus estimate for earnings for the to-be-reported quarter has been revised almost 1% upward to $4.19, indicating a 4.1% decline from the prior-year quarter.
Image Source: Zacks Investment Research
JPMorgan has an impressive earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, with an average beat being 12.31%.
Image Source: Zacks Investment Research
Key Factors to Influence JPMorgan’s Q2 Performance
Net Interest Income: JPMorgan is expected to have witnessed modest gains from high interest rates. As the Federal Reserve kept the interest rates steady during the quarter (at a 22-year high of 5.25-5.5%), the company is less likely to have recorded significant improvement in net interest income (NII). Also, the inverted yield curve in the June-ended quarter and high funding costs are expected to have weighed on NII growth.
However, the stabilizing macroeconomic backdrop and the expectations of Fed easing later this year are likely to have offered some support to the lending scenario. Per the Fed’s latest data, the demand for commercial and industrial, real estate and consumer loans was decent in the first two months of the quarter.
The Zacks Consensus Estimate for NII (reported) of $22.83 billion suggests a 4.8% increase. Our estimate for NII implies a rise of 5.2% to $22.9 billion.
Markets Revenues: Client activity was decent in the second quarter. The likelihood of a soft landing of the U.S. economy, gradually cooling inflation and clarity on the Fed rate cut path drove the client activity. Nonetheless, volatility was low in equity markets and other asset classes, including commodities, bonds and foreign exchange. So, JPMorgan is likely to have recorded decent growth in markets revenues (comprising nearly 20% of the company’s total revenues) this time.
The consensus estimate for equity markets revenues of $2.56 billion suggests a 4.2% rise on a solid equity market performance during the quarter. The Zacks Consensus Estimate for fixed-income markets revenues of $4.77 billion indicates 3.5% growth.
Our estimates for equity markets revenues and fixed-income markets revenues stand at $2.29 billion and $4.74 billion, respectively.
Management expects markets revenues to improve slightly more than the previously mentioned mid-single-digit growth.
Investment Banking (IB) Fees: A rebound in global mergers and acquisitions (M&As) in the second quarter of 2024 after subdued 2023 and 2022 is expected to have immensely supported JPMorgan’s IB fees. Both deal value and volume witnessed a remarkable comeback driven by solid financial performance, fading recession risks, buoyant markets and expected rate cuts this year. Yet, tough scrutiny by antitrust regulators and lingering geopolitical tensions were headwinds. JPMorgan’s leadership in the space is likely to have offered support to advisory fees.
Likewise, the IPO market activity was decent in the second quarter, given the impressive equity market performance. This also drove some solid activity in follow-up equity issuances. Further, bond issuance volume was boosted by lower yields, a better operating backdrop compared with last year, election-related uncertainty and a resurgence in M&As. Thus, growth in JPMorgan’s underwriting fees (accounting for almost 60% of total IB fees) is expected to have been solid during the to-be-reported quarter.
The consensus estimate for IB revenues (in the Corporate & Investment Banking segment) is pegged at $2.14 billion, suggesting a jump of 26.6%. Our estimate for the metric stands at $1.92 billion.
Management expects IB revenues to increase in the range of 25-30% on a year-over-year basis, driven by robust capital markets performance.
Mortgage Banking Fees: Though the mortgage rates have declined from the peak of more than 8%, it is still considerably high at almost 7%. Though the central bank has signaled a 25-basis point cut in rates this year, the demand for mortgages didn’t improve much in the second quarter of 2024. Due to the home price appreciation and lower supply, mortgage origination volume remained weak too. Yet, supported by lower rates, there was a modest rise in refinancing activities. This is likely to have aided JPMorgan’s mortgage banking income.
The consensus estimate for mortgage fees and related income of $298.8 million implies a 7.5% rise from the prior-year quarter. Our estimate for the metric stands at $284.5 million.
Expenses: JPMorgan’s plan of entering new markets by opening branches, which is already on track, along with inorganic expansion efforts, is likely to have resulted in an increase in operating expenses in the second quarter. Also, investments in technology to strengthen digital offerings might have led to higher costs.
Our estimate for non-interest expenses stands at $23.07 billion, implying an increase of 10.8% on a year-over-year basis.
Asset Quality: JPMorgan is likely to have set aside a substantial amount of money for potential delinquent loans (mainly commercial loan defaults), given the expectations of an economic slowdown. Our estimate for provision for credit losses is pegged at $2.58 billion.
The Zacks Consensus Estimate for non-performing loans (NPLs) of $8.42 billion implies a 15.8% increase year over year. The consensus estimate for non-performing assets (NPAs) of $8.92 suggests a 13.8% rise. Our estimates for NPAs and NPLs are pegged at $8.22 billion and $7.65 billion, respectively.
What Our Model Reveals
Our proven model predicts an earnings beat for JPMorgan this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. That is the case here, as you can see below.
JPMorgan has an Earnings ESP of +0.57%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
JPM carries a Zacks Rank #3 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price Performance & Valuation
JPMorgan was among the top three performing banks on the S&P 500 index in the first half of 2024, with the other two lenders being Citigroup (C - Free Report) and Wells Fargo (WFC - Free Report) . All three stocks have outperformed the S&P 500 index.
First Half 2024 Price Performance
Image Source: Zacks Investment Research
C and WFC are scheduled to announce second-quarter results on the same day as JPM.
Now, let’s look at the value JPMorgan offers investors at current levels.
Currently, JPM is trading at 12.42X forward 12 months earnings, above its five-year median of 11.82X. Meanwhile, the industry’s forward earnings multiple sits at 11.43X. The company’s valuation looks somewhat stretched compared with its own range and the industry average.
Price-to-Earnings (forward 12 Months)
Image Source: Zacks Investment Research
Investment Considerations: Balancing Risk and Reward
JPMorgan is well-poised to benefit from its scale and size, and leverage its leading position in several businesses. The acquisition of First Republic Bank last year continues to support its financials. It is also expanding its footprint in new regions and plans to capitalize on cross-selling opportunities.
JPM intends to increase its quarterly dividend for the second time this year as it cleared the 2024 stress test. The company also authorized a new share repurchase program.
Yet, the volatile nature of the capital markets business will likely keep JPM’s fee income growth challenging. Mounting expenses and subdued mortgage banking business are other concerns.
Our Take
The resurgence of capital markets business (especially investment banking or IB business), high interest rates, decent loan demand and strategic acquisitions paint a positive picture for the bank ahead of second-quarter earnings.
Nonetheless, concerns over rising expenses because of investment in technology and branch expansion efforts, weakening asset quality and stretched valuation warrant caution for potential investors.
While JPMorgan's long-term prospects remain promising as the banking industry continues to regain momentum, investors should not rush in to buy the stock. Those who already have the JPM stock in their portfolio can hold on to it because the country’s largest bank is less likely to disappoint, as indicated by its Earnings ESP.