JPMorgan Chase Earnings: What to Look For

JPMorgan Chase & Co. (JPM) is the biggest U.S. bank with a market value of $275.0 billion, making it a bellwether of the financial services industry and the economy. And the bank's outlook suddenly has darkened. JPMorgan Chase, whose stock outperformed the market for most of the past year, has plunged in the past 6 weeks due to the economic and market turmoil caused by the COVID-19 pandemic. As a result, investors are likely to watch JPMorgan Chase for signs of both weakness and resilience in the banking industry when the company reports earnings before the market opens on April 14, 2020 for Q1 2020.

Investors are likely to closely watch whether JPMorgan Chase has been able to maintain its net interest margin as central banks worldwide such as the Fed have slashed interest rates to support their economies. This key metric signals the bank's ability to lend money at higher rates than it pays for deposits such as savings accounts. Analysts expect JPMorgan Chase to report that its net interest margin fell as earnings per share declined about 8.0% year-over-year (YOY). These numbers may not reflect the full impact of the pandemic, which only began to affect the U.S. and other economies in the second half of Q1.

During the trailing 12-month period, JPMorgan Chase has underperformed the market overall, with a total return of -12.6% compared with -8.0% for the S&P 500 Index.

JPMorgan Chase has reported YOY gains in both EPS and revenue in recent first quarters. Overall, EPS growth has outpaced revenue gains during the height of the economic expansion. Earnings climbed by 22.2% YOY in Q1 2017 as revenue rose 7.3%. Profit growth accelerated sharply in Q1 2018, rising 43.6% YOY on an 11.9% revenue increase. In Q1 2019, earnings growth slowed to 11.8% YOY, but that still was more than double the pace of revenue growth. The coming quarterly report for Q1 2020 is expected to be a dramatic departure from that trend as earnings per share fall for the first time in more than 2 years. While the good news is that revenue still will grow, the estimated 0.5% increase is a fraction of recent quarters.

JPMorgan Chase's downshift also will be apparent when compared sequentially to the most recent Q4 2019, when the bank exceeded analyst estimates for both EPS and revenue. Compared to Q4, earnings per share in Q1 will fall as revenue rises.

JPMorgan Chase Key Metrics
  Estimate for Q1 2020 Q1 2019 Q1 2018
Earnings Per Share ($) 2.43 2.65 2.37
Revenue ($B) 29.3 29.1 27.9
Net Interest Margin (%) 2.35 2.56 2.48

For a bank like JPMorgan Chase, net interest margin is a key indicator of overall performance. As indicated, this key ratio shows whether a financial institution is able to lend money at higher rates than it pays for deposits and other sources of funds. The metric signals whether a bank can thrive over the long haul, and it helps prospective investors determine whether or not to buy shares in a given financial services firm. For banks like JPMorgan Chase, net interest margin is particularly important at periods like this year, when the COVID-19 pandemic has led to falling interest rates.

On a quarterly basis over the past two years, JPMorgan Chase has seen its net interest margin remain fairly steady between the range of 2.38% (Q4 2019) and 2.56% (Q1 2019). However, net interest margin has been steadily declining on a quarterly basis since Q1 2019, following a slow trend upward for this metric in FY 2017 and FY 2018. Now, analysts have predicted an even lower net interest margin of 2.35% for Q1 2020. If expectations come to pass, that will be the lowest quarterly net interest margin figure for JPMorgan Chase since Q2 2017.

Article Sources

  1. JPMorgan Chase & Co. "JPMorgan Chase Announces Conference Calls to Review First-Quarter, Second-Quarter, Third-Quarter and Fourth-Quarter 2020 Earnings," Accessed April 6, 2020.

  2. Visible Alpha

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