North America

Earnings Preview: JP Morgan Chase Q4 2016 (JPM)

By: Craig Bowles

Overview

JP Morgan Chase (JPM) is scheduled to report 4Q 2016 earnings before the bell on Friday, January 13th. The results will be released at approximately 8:00 a.m. ET with a conference call available at JPMorgan Chase Investor Relations to follow at 10:00 a.m. JP Morgan Chase is among the first of the major banks to report each quarter and releases 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. If Earnings Per Share (EPS) Excluding Items is available, that value will compare with consensus estimates. The Street estimate is $1.43 (range $1.33 to $1.54). (Source: Yahoo! Finance) Consensus was $1.37 three months ago.
  • Revenue: Consensus expectations are for a 0.8% y/y decline to $23.95 bln (range $23.00 bln to $25.02 bln).
  • JPMorgan’s P/E of 14.8 compares to a 5-year average 10.9; Price/Book of 1.3 compares to a 5-year average 1.0; Price/Revenue of 3.3 compares to a 5-year average 2.2; and Dividend yield of 2.2% compares to a 5-year average 2.4%.
  • Analysts view JP Morgan with 17 (22 last qtr) Buy, 10 Hold, and 3 Sell rating. (source: MarketBeat.com)
  • Insiders have sold 312,109 shares the last three months and 1,501,898 shares in the past year (source: NASDAQ.com). March 2015’s $6.4 billion stock buyback was increased $1.88 billion in March 2016. In June 2016, the Fed approved a share repurchase program of up to $10.6 billion over the next twelve months.
  • JPMorgan Chase shares have a 1-day average price change on earnings of 2.06%. Options are pricing in an implied move of 2.68% off earnings.

Recent News

  • 01/03: Barclays named JPMorgan Chase their new top pick citing potential for higher interest rates/steeper yield curve; lower tax rates aiding EPS, asset quality, and economic growth. A less cumbersome regulatory environment also should help lift valuations, according to a post on Barron’s.com.
  • 01/03: The Indonesian government has sidelined JPMorgan as a primary bond dealer after the U.S. bank’s research arm recommended an “underweight” position in Indonesian stocks, according to a post on Barron’s.com.
  • 12/21: Moody’s believes the Fed’s new TLAC rule means JPMorgan needs another $9.6 billion to buffer against any potential future losses in a crisis, according to a post on Barron’s.com.
  • 12/15: RBC Capital Markets has a Buy rating on JPMorgan Chase citing stronger economic growth, lower corporate tax rates, regulatory reform, and higher interest rates, according to a post on Barron’s.com.
  • 12/06: Jamie Dimon, CEO of JPMorgan Chase, suggested the bank might issue a special dividend rather than buy back more shares if its stock price keeps rising, according to a post on Barron’s.com.

Technical Review

JPMorgan’s stock price held up better than most big banks in early 2016 and has been a leader since.  JPMorgan Chase shows an all-time high of $87.76 on January 3rd, 2017 after leading the Trump rally. Point and figure technicians have a tentative bullish price objective of $149. (Chart courtesy of StockCharts.com).

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Summary

Analysts remain mostly bullish on JPMorgan Chase despite bank stocks having advanced over 20% on average since the election. Jamie Dimon’s mentioning a possible special dividend in lieu of a stock buybacks is interesting. Earnings have beaten estimates by an average of 12c the past four quarters. Estimize consensus for an EPS of $1.46 on revenue of $23.756 billion compares to analyst consensus of $1.43 on revenue of $23.95 billion.

 

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