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发表于 2010-7-14 01:20 PM
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Earnings Preview: JPMorgan
By: Zacks Equity Research
July 14, 2010 | Comments: 0
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JPM | BP
Print Share
JPMorgan Chase & Co. (JPM - Analyst Report) is scheduled to report its second quarter 2010 results before the market opens on Thursday, July 15. The Zacks Consensus Estimate for the second quarter is 71 cents per share, representing a growth of about 155% over the year-ago quarter.
Though concerns related to the impact of the upcoming financial reform bill and JPMorgan’s exposure to BP Plc (BP - Analyst Report) have overshadowed its share price in recent days, the company is expected to report in-line results based on its rapidly improving fundamentals.
Previous Quarter Performance
JPMorgan’s first quarter earnings came in at 74 cents per share, substantially ahead of the Zacks Consensus Estimate of 63 cents. This also compares favorably with earnings of 40 cents in the prior-year quarter.
Better-than-expected earnings for JPMorgan were primarily aided by higher revenues as a result of the continued strong performance of its Investment Bank, chiefly in Fixed Income Markets. All the other segments, except Consumer Lending and Card Services, also delivered solid results during the quarter. However, high levels of consumer credit portfolio losses and increased non-interest expense were the primary factors, which negatively impacted the results.
Managed net revenue for the quarter came in at $28.2 billion, up 5% from $26.9 billion in the year-ago quarter.
Earnings Estimate Revisions - Overview
Ahead of the earnings release, estimates have radically moved down. The estimate revision trends and the magnitude of such revisions justify the weakness in the stock. We will now go through the details of the earnings estimate revisions to substantiate investor apathy toward this stock.
Agreement of Analysts
Looking at the estimates revision trends, it becomes clear that a majority of the analysts are in agreement with the lower FY2010 outlook for JPMorgan earnings. The following table shows that 14 analysts have lowered estimates for FY2010, while no upward revisions were witnessed over the last 30 days.
Also, for FY2011, 7 analysts have lowered the estimates and only 2 have moved in the opposite direction. The higher number of downward estimate revisions for FY2010 and FY2011 indicate a likelihood of downward pressure on the performance of the stock in the near term.
Magnitude of Estimate Revisions
Estimates for FY2010 deteriorated substantially from the operating earnings of $3.28 per share to $3.14 over the last 30 days. Also, estimates for FY2011 moved down from earnings of $4.87 per share to $4.76. The magnitude of the downward estimate revisions indicates why adding JPMorgan to an investor’s portfolio is best avoided at this point.
Earnings Surprise
However, the following table shows that JPMorgan’s performance has been stable over the trailing four quarters with respect to earnings surprises. The average earnings surprise was a positive 118%. This implies that the company has beaten the Zacks Consensus Estimate by that magnitude over the last four quarters.
Our Take
Though JPMorgan’s credit metrics showed a slightly improvement in the last couple of quarters, the overall pressure on credit quality remains a significant threat to profitability in the upcoming quarters.
Early-stage delinquencies across almost all of consumer lending areas (home equity, mortgage and credit card) are showing signs of stabilization. However, it is a bit early for any sustainable trend indication.
Net charge-offs and non-performing asset ratios have deteriorated significantly during the last few quarters. Though the company has been witnessing an improvement with respect to provision for credit losses in the recent quarters, continued weakness in the credit environment will largely mar the positive effects.
The sluggish market recovery could potentially lead to reduced levels of client activity, lower investment banking fees and lower trading revenues for JPMorgan. Also, earnings in the Commercial Banking and Treasury & Securities Services segments could decline due to the impact of tighter spreads in a low interest rate environment or a decline in the level of liability balances. An expected high level of consumer credit portfolio losses will also prove to be a headwind to the overall profitability.
However, JPMorgan is poised to benefit from its leading businesses and large scale acquisitions. Each of its businesses ranks among the top three players in the respective industry. The company is also pursuing acquisitions to build scale and volumes.
While we anticipate continued synergies from the company’s diversification and strong capital position, stressed credit quality and reduced levels of client activity will drag upcoming earnings.
The estimate revision trends, magnitude of revising the estimates and higher number of downward estimate revisions clearly portray the potential for significant downward pressure on the stock over the near term.
However, JPMorgan shares are maintaining a Zacks #3 Rank, which translates into a short-term Hold recommendation.
Considering the company’s business model and fundamentals, we have a long-term Neutral recommendation on the stock. |
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