JPMorgan Earnings Preview: Why JPMorgan Is Likely To Report An Earnings Miss For FY19

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JPMorgan (NYSE: JPM) is slated to release its Q4 and full-year 2019 results on Tuesday, January 14. The diversified banking giant’s results usually provide important insights into overall trends across banking services over a period because of JPMorgan’s dominance across consumer banking, investment banking, custody banking as well as asset & wealth management. Trefis details expectations from the bank in an interactive dashboard, parts of which are highlighted below. We believe that JPMorgan will miss revenues and earnings for FY19. While revenues would likely touch $114.7 billion primarily due to expected revenue growth in the Consumer Banking business, this growth will very likely be lower than the consensus estimate of $115.9 billion due to securities trading headwinds and the impact of the Fed’s rate cuts on net interest margin. The EPS figure is expected to be around $10.12 due to a combination of higher expenses and slightly lower growth in revenues weighing on net income margin. This compares with the consensus estimate of $10.47. Further, we believe that weaker-than-expected revenues and earnings for FY 2019 will very likely result in JPMorgan’s stock falling once earnings are announced. Our forecast indicates that JPMorgan’s valuation is $124 a share, which is roughly 10% below its current price of $137.

(1) JPMorgan’s revenues are expected to increase 5.2% from $109 billion in 2018 to $114.7 billion in 2019; slightly below consensus estimates

  • Trefis estimates JPMorgan’s 2019 revenues to be $114.7 billion, 1% below the consensus estimate of $115.9 billion
  • JPMorgan revenues have grown at an average annual rate of 7% over the last three years, however, we expect the growth rate to reduce to around 4-5% over 2019-2020.
  • Consumer banking business, which encompasses its traditional loans-and-deposits operations, has contributed more than half of the bank’s growth over the last three years.
  • The segment’s importance in the banking giant’s business model is expected to increase over coming years as it is set to provide $6.6 billion out of the incremental $10.5 billion in total revenues for the bank between 2018 and 2020 – which is 63% of expected growth. In 2019, we expect the segment to have contributed $55 billion to JPMorgan’s revenues, making up 48% of the $114.7 billion in Total Revenues for the year.
  • Corporate & Investment Banking, the second-highest contributing business of JPMorgan, should have contributed $36 billion in 2019 – down 1% y-o-y, which translates into a revenue share of 32%.
  • Asset & Wealth Management has grown 17% over the last three years and is likely to have increase by 7% in 2019 to $15 billion.
  • Although the Commercial Banking business is on a growth trajectory, we expect the growth rate to be slower in the near term, with revenues being restricted to around $9.4 billion by 2019.

Our interactive dashboard analysis, How Does JPMorgan Make Money?, provides an in depth view of the company’s revenues along with our forecasts and a comparison of trends with peers Citigroup, Bank of America and Wells Fargo.

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(2) While EPS figure is expected to increase 13% from $9.00 in 2018 to $10.12 in 2019, it is likely to miss consensus estimates

  • JPMorgan’s 2019 earnings per share (EPS) is expected to be around $10.12 per Trefis analysis, lower than the consensus estimate of $10.47 per share.
  • An increase in Revenues as detailed above coupled with a steady reduction in Shares Outstanding will drive EPS growth despite an expected increase in Total Expenses by 5.3%.
  • As we forecast JPMorgan’s Revenues to grow at a slightly slower rate than Expenses in 2019 (5.2% vs. 5.3%), this will result in a slight decrease in JPMorgan’s Net Income Margin figure from 28.2% in 2018 to 28.1% in 2019.
  • For 2020, we believe that a steady revenue growth coupled with slightly lower growth in expenses will result in the net income margin figure improving to 28.8%

Our interactive dashboard analysis, How Does JPMorgan Spend Its Money, provides an in depth view of the company’s expenses.

(3) Stock price estimate ~10% lower than market price

  • A trailing P/E multiple of 12.3x looks appropriate for JPMorgan’s stock, as opposed to the current implied P/E multiple of 13.1x.
  • Trefis’ estimate for JPMorgan’s 2019 earnings as well as P/E multiple are slightly lower than market expectations, working out to a fair value of $124 for JPMorgan’s stock as opposed to the current market price around $137.

Additionally, you can input your estimates for JPMorgan’s key metrics in our interactive dash board for JPMorgan’s pre-earnings, and see how that will affect the company’s stock price.

 

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