JPMorgan and Wells Fargo are part of Zacks Earnings Preview
For Immediate Release
Chicago, IL – October 7, 2024 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes JPMorgan JPM and Wells Fargo WFC.
Are Bank Stocks a Buy Ahead of Quarterly Results?
JPMorgan shares have lost roughly -7% of their value since the end of August when they reached their 52-week high. Wells Fargo, which joins JPMorgan in kicking off the Q3 earnings season for the Finance sector on Friday, October 11th, is down only half that much in that period.
The performance of these two bank stocks since August 30th contrasts the S&P 500 index, which gained +0.8% over that time window.
The recent underperformance of JPMorgan and Wells Fargo shares notwithstanding, these two stocks have been standout performers over the past year.
Driving these stocks’ recent underperformance is the combination of renewed economic growth worries and the impact of lower interest rates on near-term net interest incomes.
The economic growth overhang is a far more significant issue for banks like JPMorgan and Wells Fargo as it not only drives the demand for credit but also the health of the existing loan portfolio.
Loan demand has been anemic in recent quarters, with industry data suggesting loan growth of about +1% in Q3. The start of the Fed’s easing cycle is unlikely to have an immediate impact on this score, but we can reasonably expect an improving loan demand outlook in 2025, particularly if the economy can avoid the feared recessionary outcome.
Concerning credit quality, the problems in the commercial real estate (CRE) market are well known and already adequately provisioned for at the major banks. Beyond CRE, aggregate bankruptcies in the U.S. are up significantly from the Covid-driven low of early 2022, but the growth rate has been leveling off in recent months. With current bankruptcy levels roughly 30% below pre-Covid averages, the recent slowing of the bankruptcy growth pace is likely indicative of improved household balance sheets. But as with the outlook for loan demand, a benign credit quality outlook needs the Fed’s easing cycle to help the economy avoid negative growth outcomes.
With respect to investment banking, revenues should be up in the low to mid-teens percentage range, with year-over-year gains in the debt and equity capital markets activities offset by continued weakness on the M&A side. The outlook for M&A should perk up once the election uncertainty is in the rearview mirror and clarity about the political and regulatory environment emerges.
JPMorgan is expected to report $4.04 per share in earnings (down -6.7% year-over-year) on $41.01 billion in revenues (up +2.9% YoY). The stock was modestly up on the last earnings release on July 12th but was down in response to each of the preceding two quarterly releases in April and January 2024. Estimates have modestly come down lately, with the current $4.04 EPS estimate down from $4.05 a week back and $4.06 a month back.
The dark green line in this chart represents the forward EPS estimate, which we have highlighted in two colors, with the blue highlight representing the period from April 1st through 30th and the purple highlight depicting the period since then. As you can see above, estimates were steadily going up in the first period and have been flat to modestly down since the start of September 2024.
Wells Fargo is expected to report EPS of $1.27 (down -8.6% year-over-year) on $20.38 billion in revenues (down -2.3% YOY). Estimates for Q3 have largely been unchanged since the period got underway, with the relatively long-term revisions trend on the positive side, as shown in the chart below of stock price relative to the forward 12-month consensus EPS estimates.
The Zacks Major Banks industry, of which JPMorgan and Wells Fargo are a part, is expected to earn -15.7% less earnings in 2024 Q3 on +0.5% higher revenues. Please note that this industry brought in roughly 50% of the Zacks Finance sector’s total earnings over the trailing four-quarter period.
Q3 earnings for the Zacks Finance sector are expected to be up +1.9% from the same period last year on +4.6% higher revenues.
Despite the big bank stocks’ outperformance over the past year, they are still cheap on most conventional valuation metrics. The chart below shows a 10-year history of the Zacks Major Banks industry for a forward 12-month P/E basis.
Admittedly, the industry isn’t as cheap as in October 2022 when it traded at 7.1X. But the current 9.1X multiple compares to a 10-year high of 12.3X, a low of 7.1X, and a median of 9.9X.
Looking relative to the market as a whole, the Zacks Major Banks industry is currently trading at 42% of the S&P 500 forward 12-month P/E multiple. Over the last ten years, the industry has traded as high as 69% of the index, as low as 39%, and a median of 53%.
At a time when the S&P 500 index is at or near its record level, the Finance sector’s discounted valuation has to be one of the most attractive investment spots in the market.
This is particularly so for those investors who believe that the economy is headed towards a soft landing that will have all the beneficial knock-on effects on this economically sensitive space regarding credit losses and loan demand.
The Earnings Big Picture
Total Q3 earnings for the S&P 500 index are expected to be up +3.3% from the same period last year on +4.5% higher revenues. This would follow the +10.2% earnings growth for the index in the preceding period on +5.5% higher revenues.
Regular readers of our earnings commentary are familiar with our sanguine view on corporate profitability; the earnings picture isn’t great, but it isn’t bad either.
The one recent negative development on this front is the reversal of the earlier favorable revisions trend that we have regularly flagged in our commentary. This negative revisions trend is particularly notable concerning expectations for 2024 Q3, with earnings estimates for the period getting revised down much more than we had seen in other recent periods.
Not only is the magnitude of cuts to Q3 estimates bigger than what we saw in the comparable periods for the last three quarters, but it is also widespread and not concentrated in one or a few sectors.
Of the 16 Zacks sectors, estimates have been revised down for 14 sectors, with the Transportation, Energy, Business Services, and Aerospace sectors suffering the biggest declines. The Tech and Finance sectors are the only sectors whose estimates have modestly risen since the period got underway.
Please note that this year’s +7.8% earnings growth improves to +9.7% on an ex-Energy basis.
The Q3 Earnings Season Scorecard
The JPMorgan and Wells Fargo reports will not be the first Q3 results, as the quarterly reporting cycle has already begun. Companies with fiscal quarters ending in August have been releasing results in recent days, which all get clubbed with the September-quarter reporting tally. Through Friday, October 4th, we have such August-quarter results from 21 S&P 500 members.
Total earnings for these 21 index members that have already reported results are up +20.3% from the same period last year on +2.7% higher revenues, with 71.4% beating EPS estimates and 71.4% beating revenue estimates.
It is premature to identify any trends at this very early stage, but the favorable comparison of the revenue beats percentage will be significant if it endures through the rest of the Q3 reporting cycle.
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>>Earnings Growth Set to Accelerate
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
support@zacks.com
https://www.zacks.com
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 https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Wells Fargo & Company (WFC) : Free Stock Analysis Report
JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report