North America

Earnings Preview: JP Morgan Chase Q4 2015 (JPM)

By: Craig Bowles

Overview:

JP Morgan Chase (JPM) is scheduled to report 4Q 2015 earnings before the bell on Thursday, January 14th. The results will be released at approximately 7:00 a.m. EST with a conference call available at JPMorgan Chase Investor Relations to follow at 8:30 a.m. JP Morgan Chase is the first of the major banks to report and will release earnings via their web site rather than through the wire services. The earnings reports could have a significant impact in the trading of other names in the financial sector, as well as U.S. index futures and other broad market securities.

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Outliers & Strategy

Key Measures:

  • Earnings Per Share (EPS): This is the value that is normally compared with consensus estimates but verbiage is often present. Last quarter, Earnings Per Share (EPS) Excluding Items was available to compare with consensus estimates. The Street estimate is $1.30 (range $1.19 to $1.42) (Source: Yahoo! Finance). Consensus was $1.43 three months ago.
  • Revenue: Consensus expectations are for a 1.9% y/y decline to $23.10 bln (range $21.50 bln to $24.17 bln).
  • JPMorgan’s P/E of 10.8 compares to a 5-year average 10.5; Price/Book of 1.1 compares to a 5-year average 1.0; Price/Cash Flow of 2.8 compares to a 5-year average 29.2; and Dividend yield of 2.7% compares to a 5-year average 2.5%.
  • Analysts view JP Morgan with 20 Buy, 5 Hold, and 1 Sell rating (source: MarketBeat.com).
  • Insiders have sold 198,439 shares the last three months and 2,116,644 shares in the past year (source: NASDAQ.com). The company spent $24.5 billion buying back stock in this recovery and received Fed approval in March 2015 for another $6.4 billion, which is close to last year’s amount.
  • JPMorgan Chase shares have a 1-day average price change on earnings of 2.03%. Options are pricing in an implied move of 4.76% off earnings.

Recent News

  • 01/05: JPMorgan will pay $48 million to settle the handling of robosigning defaults. The new fine will close out JPMorgan’s OCC obligations where it had faced $2 billion in penalties and payments to borrowers, according to a post on Bloomberg.com.
  • 01/04: JPMorgan and Goldman Sachs (GS) were the only Wall Street banks in 2015 with investment-banking revenue above $5 billion, according to a post on BusinessInsider.com.
  • 12/28: JPMorgan Chase plans to increase deposit rates for some of its largest clients in January, according to a post on WSJ.com.
  • 12/30: J.P. Morgan will start using online lender On Deck Capital Inc. to help make loans to some of the bank’s roughly four million small-business customers, according to a post on WSJ.com.
  • 12/21: JPMorgan settled “conflict of interest” charges and refunds for $307M, according to a post on Zacks.com.
  • 12/10: Keefe, Bruyette & Woods rates JPMorgan Outperform and among their favorite stocks for 2016 based on an attractive valuation relative to the group—despite the generation of solid profitability measures, according to a post on Barron’s.com.
  • 12/08: JPMorgan’s CFO said debt capital markets volumes are down in line with the industry average (-36%) in Q4 rather than analysts’ estimates, which are far less (-15% to -17%). Q4 trading revenue is expected to be -15%, according to a post on WSJ.com.

Technical Review

Over the last 10 years, JPMorgan’s stock traded more similar to Goldman Sachs than the other money center banks.  JPMorgan Chase shares more than doubled from May 2012 to the July 2015’s all-time high of $70.61, so a 50% retracement would test just below $50. Point and figure technicians have a bullish price objective of $88 and their uptrend line is $58. (Chart courtesy of StockCharts.com).

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Summary

The company is repurchasing another $6.4 billion shares this year but insider selling has predominated since the stock’s July all-time high price. Earnings have beaten estimates by increasing amounts the last three quarters from 5c up to 31c, so the average beat is 15c. Estimize consensus for an EPS of $1.37 on revenue of $23.325 billion compares to analyst consensus of $1.30 on revenue of $23.10 bln.

 

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