Can JPMorgan Beat Earnings for the 7th Time in a Row

JPMorgan Chase & Co (NYSE: JPM) will deliver its earnings report on Friday, July 14 before market open. In the past J. P. Morgan demonstrated decent financial performance and beat six quarters in a row, but will it be able to provide the same results in Q2 2017?

The consensus EPS forecast for the quarter is $1.59. The reported EPS for the same quarter last year was $1.55. JPM share price will most certainly be affected by the data revealed in the report. Depending on the results demonstrated the JPM share price can go up or down in the beginning of the trading session on Friday.

[caption id="attachment_493" align="aligncenter" width="749"] Can JPMorgan Beat Earnings for the 7th Time in a Row[/caption]

 

ANALYST STIMATES

 

 

[caption id="attachment_494" align="aligncenter" width="418"] Can JPMorgan Beat Earnings for the 7th Time in a Row[/caption]

 

 

Reasons to invest in J. P. MorgaN

Interest Rate Hikes. Net interest income and net interest margin have been negatively affected by low interest rates over the course of a few years. However, interest rate hikes, announced and carried out by the Federal Reserve, are destined to lift restrictions on both metrics. Net interest income is expected to grow during 2017 thanks to loan growth.

[caption id="attachment_495" align="aligncenter" width="529"] Can JPMorgan Beat Earnings for the 7th Time in a Row[/caption]

Cost-cutting Initiatives. Following the global financial downturn J. P. Morgan decided it is time for the company to cut down the unnecessary expenses and turn back to the core business. In its pursuit to bring the banking division back to the roots JPM cuts down the number of branches and makes an emphasis on automated operations. The number of employees has been going down in the less profitable business areas. In 2016 JPMorgan Chase & Co spent $56.0 billion, a $2.4 billion decrease when compared to 2014. The initiative can be considered to be an analogue of cost-cutting programs in the manufacturing sector companies.

 

[caption id="attachment_496" align="aligncenter" width="547"] Can JPMorgan Beat Earnings for the 7th Time in a Row[/caption]

Loans-to-deposits ratio.

The bank is good at supporting the required loans-to-deposits ratio, which was equal to 63% in the end of March 2017. Total number of both loans and deposits continues to grow. The market environment is not the best one for the banking industry right now. However, JPM manages to provide solid results and sustain the health of its banking business.

[caption id="attachment_497" align="aligncenter" width="774"] Can JPMorgan Beat Earnings for the 7th Time in a Row[/caption]

 

Financial Choice Act. Adopted in the midst of the world financial crisis in 2010, the Dodd-Frank Act seems to bother huge financial institutions no more. All thanks to the Financial CHOICE Act, that, if adopted, will roll back the limitations on fund allocation in commercial banks. Changes in legislation can untap the financial potential of JPMorgan Chase & Co

Capital Deployment. The top management revealed its plans to increase dividends by 12% in 2017 and spend $19.4 billion on share repurchases.

[caption id="attachment_498" align="aligncenter" width="712"] Can JPMorgan Beat Earnings for the 7th Time in a Row[/caption]

 

Warning signs

Non-interest Income. Non-interest income is not expected to grow later this year. Unfavorable macroeconomic conditions and equity market turmoil are to blame. Trading revenue is expected to fall in the second quarter. A four-year compound annual growth rate for the segment totaled only 2.8%.

[caption id="attachment_499" align="aligncenter" width="736"] Can JPMorgan Beat Earnings for the 7th Time in a Row[/caption]

 

 

Federal Investigations. J. P.

Morgan still faces several investigations from a number of governmental agencies, that pose not only financial but also reputational risks to the company. Business conduct and shady practices arise certain questions that JPM will have to answer, sooner or later.

Stretched Valuation.

Good performance in the past is not always an indicator of the same results in the future. However, almost always it means that the company’s share price will go up, stretching its valuation. The exact same thing happened to JPM shares. With a trailing P/B (price-to-book) ratio of 1.43 J. P. Morgan is getting closer to the highest valuation in its history. It means that certain investors won’t find the purchase of JPM stocks a thoughtful investment until the price goes down.

[caption id="attachment_500" align="aligncenter" width="704"] Can JPMorgan Beat Earnings for the 7th Time in a Row[/caption]

Negative Earnings Revision.

JPMorgan Chase & Co outperformed the retail banking industry, demonstrating an impressive 55.8% growth over the course of twelve month. However, company’s earnings estimates have recently been negatively revised. According to certain experts, JPM is not likely to demonstrate satisfactory financial performance in the months to come. Earnings are the driving force behind the share price growth. Without earnings improvement companies can hardly anticipate share appreciation.

[caption id="attachment_501" align="aligncenter" width="646"] Can JPMorgan Beat Earnings for the 7th Time in a Row[/caption]

 

What can we expect?
JPMorgan Chase & Co is one of five major US-based banks that demonstrated outstanding performance in the past. The company also beat six earnings estimates in a row, a winning spree many can envy in unfavorable macroeconomic conditions. However, it is impossible to guarantee that JPM shares will undoubtfully appreciate in the beginning of the trading session on Friday. Stretched valuation and negative earnings revision can indicate underlying problems of the banking giant, while federal investigations can further strengthen the financial burden.

JPM share price will most likely be affected by the factual information revealed in the earnings report (especially EPS) and top management’s plan to address the problems.

NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.