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JPMorgan, Bank of America, Citigroup, Johnson & Johnson and Kansas City Southern are part of Zacks Earnings Preview
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For Immediate Release
Chicago, IL – April 13,2020 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes JPMorgan (JPM - Free Report) , Bank of America (BAC - Free Report) , Citigroup (C - Free Report) , Johnson & Johnson (JNJ - Free Report) and Kansas City Southern .
What to Expect from Big Bank Earnings Amid Coronavirus
The large money-center banks that will kick-off the 2020 Q1 earnings season for the sector this week have been hit hard in the ongoing downturn.
Stocks in the Zacks Major Banks industry, which includes JPMorgan, Bank of America, Citigroup and others that are on deck to report results this week, have bounced back from the March 23rd lows, but the retracement has lagged the broader market. As a result, while the S&P 500 index is now down -14% this year through Thursday, April 9th, the Major Banks industry is still down more than -37%.
This underperformance is not surprising, given the group’s exposure to what is expected to be a sharp downturn in economic activities in the current period. Banking is after all a cyclical business, with the demand for credit and investment banking services strongly correlated with GDP growth. The group also suffers in a downturn from deterioration in credit conditions that has a direct bearing on the quality of its assets (loan portfolios) as borrowers struggle to service their obligations.
That said, this is not your typical economic downturn, resulting from imbalances in parts of the economy or Fed action. This is an engineered event, necessitated by the need to stop the spread of the virus. As such, it is reasonable to expect ‘normalcy’ to resume once we get some visibility on the underlying public health issue.
The policy response to the pandemic and associated economic downturn has been swift and powerful, which should help taking edge off the economic pain, both for households as well as businesses.
We are starting to see some optimism in recent days about the pandemic, which is driving the stock market rebound. But it’s fair to say that a lot still remains unclear.
With respect to banks’ Q1 earnings, and also with companies in other industries/sectors, the important elements wouldn’t be so much the numbers for the March quarter, but rather the evolving outlook for the current (2020 Q2) and following quarter. To that end, it is hard to envision any management team having the visibility to offer useful guidance. In fact, we would expect the recent trend of companies withdrawing existing public guidance to be the norm, rather than the exception.
The set up for bank earnings is tough, with margins under renewed pressure because of Fed policy. The full extent of the Fed’s emergency rate cut will show up in Q2, but net interest margin will be flat at best for most of these banks. Loan portfolios likely expanded in Q1, particularly on the C&I side, as companies used up existing revolving credit facilities. At the same time, we should brace ourselves for growing loan-loss provisions this quarter, though the full extent of that will really show up in the current and following quarter.
The group stands to benefit from the small-business loan/grant provisions of the fiscal relief measure, but we wouldn’t see that in Q1 results.
With respect to investment banking, deal activity is down, both for M&A deals as well as IPOs, but debt issuance likely expanded. Trading revenues likely benefited from record volatility as well as volumes, which we will see in the result from all the money center players as well as the brokers.
All in all, the group is in excellent financial shape, in terms of capital cushions. But questions about the group’s dividends remain.
What Are Banks Expected to Earn?
Total Q1 earnings for the Zacks Major Banks industry that includes JPMorgan, Bank of America and other major industry players are expected to be down -21.5% from the same period last year on essentially flat revenues (revenues are expected to be up +0.1%). Earnings are expected to be down in double-digits at JPMorgan (-15.2% on -0.5% lower revenues), Citigroup (-15.5% & +1.5%) and Bank of America (-18.5% & - 1%).
The group’s profitability picture is not expected to improve in the current and coming quarters, either.
For the Finance sector as a whole (Major Banks industry brings in roughly 45% of the sector’s total earnings), total Q1 earnings are expected to be down - 7.1% on +1.8% higher revenues.
Expectations for 2020 Q1 as a Whole
This week’s reporting docket isn’t confined to the banks as we will get March quarter results from a number of bellwether operators in other industries/sectors as well, including Johnson & Johnson, Kansas City Southern and others. In total, we will get Q1 results from 45 companies this week, including from 23 S&P 500 members.
The Q1 earnings season is unlikely to give us clarity on the pandemic’s full earnings impact. The reason for that is these companies are as much in the dark about the economic horizon as the rest of us.
The clouds will start lifting once we gain visibility on the pandemic’s duration, which hit Q1 only partially and is expected to ‘peak’ sometimes towards the end of this month or next. The hope is that the worst takes place in Q2, with normalcy returning in Q3 and beyond. We have been seeing the effect of this outlook in how estimates have evolved in recent days and weeks.
As bad as the Q1 revisions trend above looks, the situation is worse for the current period.
All four quarters this year are now in negative territory. We haven’t seen a lot of changes to estimates for next year, which is understandable given the all-around lack of visibility.
Both for earnings as well as revenues, primarily reflecting the pandemic’s impact. Growth is expected to resume next year and continue the following year.
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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JPMorgan, Bank of America, Citigroup, Johnson & Johnson and Kansas City Southern are part of Zacks Earnings Preview
For Immediate Release
Chicago, IL – April 13,2020 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes JPMorgan (JPM - Free Report) , Bank of America (BAC - Free Report) , Citigroup (C - Free Report) , Johnson & Johnson (JNJ - Free Report) and Kansas City Southern .
What to Expect from Big Bank Earnings Amid Coronavirus
The large money-center banks that will kick-off the 2020 Q1 earnings season for the sector this week have been hit hard in the ongoing downturn.
Stocks in the Zacks Major Banks industry, which includes JPMorgan, Bank of America, Citigroup and others that are on deck to report results this week, have bounced back from the March 23rd lows, but the retracement has lagged the broader market. As a result, while the S&P 500 index is now down -14% this year through Thursday, April 9th, the Major Banks industry is still down more than -37%.
This underperformance is not surprising, given the group’s exposure to what is expected to be a sharp downturn in economic activities in the current period. Banking is after all a cyclical business, with the demand for credit and investment banking services strongly correlated with GDP growth. The group also suffers in a downturn from deterioration in credit conditions that has a direct bearing on the quality of its assets (loan portfolios) as borrowers struggle to service their obligations.
That said, this is not your typical economic downturn, resulting from imbalances in parts of the economy or Fed action. This is an engineered event, necessitated by the need to stop the spread of the virus. As such, it is reasonable to expect ‘normalcy’ to resume once we get some visibility on the underlying public health issue.
The policy response to the pandemic and associated economic downturn has been swift and powerful, which should help taking edge off the economic pain, both for households as well as businesses.
We are starting to see some optimism in recent days about the pandemic, which is driving the stock market rebound. But it’s fair to say that a lot still remains unclear.
With respect to banks’ Q1 earnings, and also with companies in other industries/sectors, the important elements wouldn’t be so much the numbers for the March quarter, but rather the evolving outlook for the current (2020 Q2) and following quarter. To that end, it is hard to envision any management team having the visibility to offer useful guidance. In fact, we would expect the recent trend of companies withdrawing existing public guidance to be the norm, rather than the exception.
The set up for bank earnings is tough, with margins under renewed pressure because of Fed policy. The full extent of the Fed’s emergency rate cut will show up in Q2, but net interest margin will be flat at best for most of these banks. Loan portfolios likely expanded in Q1, particularly on the C&I side, as companies used up existing revolving credit facilities. At the same time, we should brace ourselves for growing loan-loss provisions this quarter, though the full extent of that will really show up in the current and following quarter.
The group stands to benefit from the small-business loan/grant provisions of the fiscal relief measure, but we wouldn’t see that in Q1 results.
With respect to investment banking, deal activity is down, both for M&A deals as well as IPOs, but debt issuance likely expanded. Trading revenues likely benefited from record volatility as well as volumes, which we will see in the result from all the money center players as well as the brokers.
All in all, the group is in excellent financial shape, in terms of capital cushions. But questions about the group’s dividends remain.
What Are Banks Expected to Earn?
Total Q1 earnings for the Zacks Major Banks industry that includes JPMorgan, Bank of America and other major industry players are expected to be down -21.5% from the same period last year on essentially flat revenues (revenues are expected to be up +0.1%). Earnings are expected to be down in double-digits at JPMorgan (-15.2% on -0.5% lower revenues), Citigroup (-15.5% & +1.5%) and Bank of America (-18.5% & - 1%).
The group’s profitability picture is not expected to improve in the current and coming quarters, either.
For the Finance sector as a whole (Major Banks industry brings in roughly 45% of the sector’s total earnings), total Q1 earnings are expected to be down - 7.1% on +1.8% higher revenues.
Expectations for 2020 Q1 as a Whole
This week’s reporting docket isn’t confined to the banks as we will get March quarter results from a number of bellwether operators in other industries/sectors as well, including Johnson & Johnson, Kansas City Southern and others. In total, we will get Q1 results from 45 companies this week, including from 23 S&P 500 members.
The Q1 earnings season is unlikely to give us clarity on the pandemic’s full earnings impact. The reason for that is these companies are as much in the dark about the economic horizon as the rest of us.
The clouds will start lifting once we gain visibility on the pandemic’s duration, which hit Q1 only partially and is expected to ‘peak’ sometimes towards the end of this month or next. The hope is that the worst takes place in Q2, with normalcy returning in Q3 and beyond. We have been seeing the effect of this outlook in how estimates have evolved in recent days and weeks.
As bad as the Q1 revisions trend above looks, the situation is worse for the current period.
All four quarters this year are now in negative territory. We haven’t seen a lot of changes to estimates for next year, which is understandable given the all-around lack of visibility.
Both for earnings as well as revenues, primarily reflecting the pandemic’s impact. Growth is expected to resume next year and continue the following year.
For an in-depth look at the overall earnings picture and expectations for Q1, please check out our weekly Earnings Trends report >>>>Taking Stock of the Earnings Picture Amid the Coronavirus Pandemic
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.