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JPMorgan (JPM) Earnings Play -- Buy or Sell

JPMorgan & Chase (JPM) will release its fourth-quarter earnings on January 12. The bank is expected to report growth in revenue over the prior-year quarter, but its EPS is expected to decline. With the central bank contemplating interest rate cuts this year, should investors invest in JPM now? Read on to learn my view…

JPMorgan Chase & Co. (JPM) is scheduled to report its fourth-quarter results on January 12. Wall Street expects the bank to post higher revenue, while its EPS is expected to decline year-over-year. With interest rates at their highest level in 22 years, investors are eagerly waiting to see how the banks' financials were impacted during the quarter.

In this piece, I have discussed why waiting for an opportune entry point in the stock could be wise.

JPM is the largest U.S. bank by assets. The financial services firm had $3.9 trillion in assets and $317 billion in stockholders’ equity as of September 30, 2023. For the fourth quarter, JPM’s EPS is expected to decline 1.8% year-over-year to $3.51. Meanwhile, its revenue is expected to rise 15.2% year-over-year to $39.79 billion.

The company has a solid earnings history, having beaten the consensus estimate in each of the trailing four quarters. It is expected to have outperformed across all its main business segments, benefiting from the higher interest rates and trading activity. Its fixed-income trading revenue, equity trading revenue, and investment banking revenue are all expected to have performed well in the fourth quarter.

However, its profitability is expected to have been challenged due to the rise in non-performing loans and the impact of higher deposit costs. In October, the bank had hiked its outlook for net interest income excluding markets by $2 billion to $89 billion. Bank of America’s analyst Ebrahim Poonawala raised the target price for JPM by 6.2% from $177 to $188, maintaining the ‘Strong Buy’ rating on the stock.

Shares of JPM have gained 20.6% over the past three months and 35% over the past nine months to close the last trading session at $172.27.

Here’s what could influence JPM’s performance in the upcoming months:

Robust Financials

JPM’s total net revenue - reported for the third quarter ended September 30, 2023, increased 21.9% year-over-year to $39.87 billion. Its net income rose 35.1% year-over-year to $13.15 billion. In addition, its EPS came in at $4.33, representing an increase of 38.8% year-over-year. Its return on common equity (ROE) was 18%, compared to 15% in the year-ago quarter. The company’s CET1 ratio was 14.3%, compared to 12.5% in the prior-year quarter.

In addition, its net interest income rose 30% year-over-year to $39.87 billion. Also, its provision for credit losses declined 10% year-over-year to $1.38 billion.

Mixed Analyst Estimates

Analysts expect JPM’s EPS and revenue for fiscal 2023 to increase 37.3% and 24.3% year-over-year to $16.60 and $159.92 billion, respectively. On the other hand, its EPS for fiscal 2024 is expected to decline 6.7% year-over-year to $15.48. Its revenue for fiscal 2024 is expected to increase marginally year-over-year to $160.03 billion.

High Profitability

In terms of the trailing-12-month net income margin, JPM’s 35.98% is 42.2% higher than the 25.31% industry average. Likewise, its 18.16% trailing-12-month Return on Common Equity is 55.3% higher than the industry average of 11.69%. Furthermore, the stock’s 1.31% trailing-12-month Return on Total Assets is 13.4% higher than the industry average of 1.16%.

Mixed Valuation

In terms of forward non-GAAP P/E, JPM’s 10.38x is 1.3% lower than the 10.51x industry average. Its 0.25x trailing-12-month GAAP PEG is 39.7% lower than the 0.41x industry average.

On the other hand, in terms of forward Price/Sales, JPM’s 3.11x is 16.7% higher than the 2.67x industry average. Its 1.68x forward Price/Book is 42.4% higher than the 1.18x industry average.

POWR Ratings Reflect Uncertainty

JPM has an overall rating of C, equating to a Neutral rating in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. JPM has a C grade for Value, consistent with its mixed valuation. Its 1.11 beta justifies its C grade for Stability.

It has a C grade for Sentiment, in sync with its mixed analyst estimates.

JPM is ranked #4 out of 9 stocks in the Money Center Banks industry. Click here to access JPM’s Growth, Momentum, and Quality ratings.

Bottom Line

Despite the challenging operating environment, JPM managed to beat revenue and earnings estimates in each of the trailing four quarters. The bank’s revenue is expected to beat analyst estimates in the fourth quarter due to the rise in net interest income driven by the high interest rates and an improving primary market. However, its profitability is expected to take a hit due to non-performing loans and the rise in the cost of deposits.

The outlook of the banking sector looks bright as some Fed officials have forecasted a soft landing for the economy, and the central bank is also contemplating rate cuts this year. However, risks pertaining to the default of commercial real estate (CRE) loans, rise in non-performing loans and credit card debt, cutting down on provisioning by big banks.

Given the uncertainty around the banking sector and JPM’s mixed analyst estimates and valuation, it could be wise to wait for a better entry point in the stock.

How Does JPMorgan Chase & Co. (JPM) Stack up Against Its Peers?

JPM has an overall POWR Rating of C, equating to a Neutral rating. You may check out these B-rated stocks within the Foreign Banks industry: Erste Group Bank AG (EBKDY), Banco Santander, S.A. (SAN), and KB Financial Group Inc. (KB). For exploring more Buy-rated Foreign Banks stocks, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

JPM shares were unchanged in premarket trading Monday. Year-to-date, JPM has gained 1.74%, versus a -1.55% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.


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