JPMorgan Chase & Co. JPM is scheduled to release third-quarter 2015 results on Oct 13, after the closing bell. The release time is unusual for this banking behemoth this time around, but will the results be so?
Other than CEO Jamie Dimon’s hint of subdued trading revenue similar to other mega players, there is no specific clue about its underlying performance so far. However, industry-wide disruption in the key operating segments had the potential to dampen its overall performance in the quarter.
While the Zacks Consensus Estimate of $1.38 per share for the third quarter indicates a year-over-year improvement of about 1.5%, our quantitative model doesn’t call for an earnings beat.
Here is what our model indicates:
The possibility of JPMorgan beating the Zacks Consensus Estimate in Q3 is less. This is because it doesn’t have the right combination of the two key ingredients – positive Earnings ESP and a Zacks Rank #3 (Hold) or better – for increasing the chances of an earnings surprise.
Zacks ESP: The Earnings ESP for JPMorgan is -0.73%. This is because the Most Accurate estimate is currently $1.37 while the Zacks Consensus Estimate stands higher at $1.38.
Zacks Rank: JPMorgan carries a Zacks Rank #3, which alone isn’t enough to secure an earnings beat.
Factors Likely at Play
Primarily, trading activity might hold back JPMorgan’s top line improvement this time around. Trading weakness had not mattered much for the company in the second quarter, as an extraordinary expense decline countered the revenue shortfall pretty well. But the very slow trading experience during Q3, particularly in August, remains a concern.
While volatility emanating from concerns surrounding the Fed’s interest rate policy and global economy – particularly related to the China slowdown – was favorable for trading activities, tighter regulations and a risk-averse approach of investors more than offset the advantages.
As the global investment banking fee slumped to a 4-year low during the quarter, JPMorgan might have witnessed a significant pressure.
Particularly, trading in FICC (fixed income, currencies & commodities) was hugely affected, though this was somewhat made up by moderate growth in equity trading.
While the continuation of M&A boom is expected to lead to some improvement in M&A fees, a declining IPO market might offset the gain.
Mortgage business on the other hand looks to have been rosy, as the low rate environment might have encouraged people to refinance home loans. Moderate growth in fresh mortgage originations is also expected. However, repayment and charge-off of mortgage loans at a rate faster than fresh originations should kept the trend in outstanding mortgage loans declining.
However, JPMorgan continued with its efforts to keep expenses at check during the quarter by streamlining operations. The company had outflows related to legal settlements, but those were usual and manageable. But it would be too optimistic to assume that overall operating expense reduction has helped the company to tide over the tough industry backdrop.
The activities of JPMorgan during the quarter have not been able to win analysts’ confidence as reflected by 8 downward revisions in earnings estimates (versus no upward revision) over the last 60 days. Among the estimates that moved south, five were seen in the last 7 days. The Zacks Consensus Estimate has been revised 6.8% downward over the last three months.
Stocks That Warrant a Look
Here are a few major bank stocks that you may want to consider, as our model shows that these have the right combination for an earnings beat this quarter.
The Earnings ESP for The PNC Financial Services Group, Inc. PNC is +1.12% and it carries a Zacks Rank #3. The company is scheduled to release results on Oct 14.
With an Earnings ESP of +2.02% and a Zacks Rank of #3, M&T Bank Corp. MTB is expected to report on Oct 16.
The Bank of New York Mellon Corp. BK has an Earnings ESP of +1.39% and carries a Zacks Rank #3. It is scheduled to report Q3 results on Oct 20.
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