JPMorgan Q4 earnings preview: Where next for JPM stock?

 

 

JPMorgan Q4 earnings consensus

JPMorgan is forecast to report a 12% year-on-year rise in managed revenue to $34.0 billion while adjusted net income per share is expected to fall 7.8% to $3.07.

 

JPMorgan Q4 earnings preview

The current macro environment is providing both benefits and challenges for major banks. On the upside, interest rates are continuing to rise, even if markets are praying for the pace of hikes to slow going forward, which is helping drive net interest income higher and allowing the industry to make more profits. On the flipside, rising rates combined with the uncertain economic outlook is making banks wary of a recession and prompting them to write-off more loans and stash more money away in case more people and businesses can’t afford to repay their debts going forward. That, combined with rising costs, is hurting their bottom lines.

JPMorgan’s net interest income is forecast to grow 37% to $18.6 billion in the fourth quarter thanks to higher rates, but this will be partly countered by lower non-interest income from its corporate & investment bank, commercial banking, and asset & wealth management divisions.

The result will be strong topline growth from its bread-and-butter operations in consumer and commercial banking, supplemented by more tepid growth from asset & wealth management. Investment banking will remain challenging as market conditions continue to cause a lull in the number of deals and new listings while reducing appetite for new equity and debt raises, all of which are pressuring fees earned by the bank – although trading in fixed-income should show some improvement.

Diving in a bit deeper, its consumer banking division is expected to see deposits increase 2.5%, marking the slowest increase in years as people find it more difficult to put money aside. In turn, loan growth is forecast to accelerate to its highest level in years to 2.8% as people borrow more money to see them through tougher times. Its commercial bank will see a similar trend as deposits are expected to decline over 15% while demand for loans is set to climb 13% from last year. Asset & wealth management will be tougher on this front with both metrics forecast to fall.

However, that will not be enough to stop earnings from declining for a fifth consecutive quarter. That is because JPMorgan is expected to book loan loss provisions, which is money set aside for potentially bad loans, of $1.97 billion in the fourth quarter. That will represent a major drag on the bottom line considering it released $1.28 billion of reserves the year before which helped boost its earnings. Meanwhile, net charge-offs, which represents the amount of debt that is unlikely to be recovered, is expected to rise 70% from last year to $933.8 million. Plus, costs continue to rise, with non-interest expenses anticipated to be over 10.6% higher than last year.

Importantly, JPMorgan’s adjusted net income is expected to start growing again in the first quarter of 2023, partly because it will be coming up against easier comparatives in terms of provisions. Having inflated earnings by releasing reserves that had been set aside during the pandemic throughout 2021, the bank started building them again and knocking earnings in the first quarter of 2022. That will provide more favourable comparatives going forward considering reserves will continue to rise throughout this year.

That suggests we are already past the trough of earnings. Markets believe JPMorgan will be among the first banks to bounce back in 2023 considering they have pencilled-in over 28% year-on-year growth in adjusted EPS in the first quarter – although growth is forecast to slow in the second and third quarters before declining once again in the fourth. That is expected to even out at 11.5% adjusted EPS growth over the full year in 2023. Below is an outline of what markets expect in terms of earnings growth from its rivals this year to show how JPMorgan could perform amid its group of peers:

Bank	2023 Adj EPS Growth Forecast
JPMorgan	11.5%
Bank of America	14.6%
Wells Fargo	41.1%
Citigroup	-9.5%
Bank of NY Mellon	15.9%
Morgan Stanley	14.5%
Goldman Sachs	10.3%

(Source: Bloomberg consensus)

 

Where next for JPM stock?

JPMorgan shares have recovered well since hitting their lowest level in almost two years back in October, before its last set of results that helped propel the stock higher as investors looked beyond the trough for earnings.

The stock has gained over 34% since then and hit a 10-month high yesterday before coming up against some resistance and closing lower. The stock has tried and failed to close above $138 on at least four occasions since the start of December, making this the first level of resistance that must be broken. From here, it can look to target $142.75, marking the peak of January 2021 that also resurfaced as a level of both support and resistance in the first three months of 2022. Notably, the 27 brokers that cover JPMorgan see slightly more upside potential considering the average target price sits at $145.50, which is not far off the 2021-low. It is worth noting that the 100-day moving average has recently returned above the 200-day moving average in a fresh bullish signal.

The 50-day moving average, currently at $132.60, has appeared as a level of support over the past month and is tracking the rising trendline that can be traced back to those lows we saw in October, but we could see the stock sink to $128.30 if it slips below here.

 

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