JPMorgan Chase & Co. (JPM) is a $234.5 billion market cap company. JPM is set to announce its Q4 earnings on Jan.14 before the market opens. According to the below chart, since the beginning of the January 2015, JPM has outperformed the financial sector and its peers. The stock has dropped by 2.72% since the beginning of the last year.
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The intrinsic value of JPM
Company overview:
JPMorgan is a financial holding company, and one of the largest banks by assets in the U.S. The company operates in five segments:
1. Investment Bank & Corporate
2. Commercial Banking Delivers
3. Consumer and Community Banking
4. Asset Management
5. Private Equity
Expectation from upcoming earnings report:
The Federal Reserve raised the federal funds rate by 0.25% in December 2015, following which banks raised their lending rates. JPMorgan was the first bank that raised deposit rates in January for some of its biggest clients, the Wall Street Journal reported. The investors on the Wall Street are eagerly watching out for earnings reports to grasp the impact of the interest rate hike on their financials. The current hike in interest rate is not expected to impact the top lines of banks in the fourth quarter, but it will impact earnings growth in the future. For the upcoming quarter, Wall Street analysts expect revenues of $25 billion, with a net income of $5.8 billion and EPS of $1.54 for the third quarter.
Catalysts
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Non-interest income:
JPMorgan's consumer segment was the largest contributor in both second and third quarter. It reported $10.7 billion in the third quarter compared to $8.2 billion in investment banking, $1.6 billion in commercial and $2.9 billion in asset management.
It is expected that the Fed will raise interest rates again in 2016, which may provide some relief for these banks, because they were struggling to extract revenue from interest rate segment business.
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EPS:
Analysts are expecting JPMorgan to post revenue of $5.8 billion for the fourth quarter, which translates to an EPS of $1.54. With the hike rates of 25 basis points, the trading incomes of the major banks are expected to improve slightly. In the past few quarters, bank earnings suffered due to the Federal Reserve postponing rate increase and decrease in the demand of some loans; however, after considering the strengthened U.S. condition, analysts are projecting there will be a rise in JPMorgan's earnings to improve as demand for loans increase.