JPMorgan (NYSE: JPM) is scheduled to report its fiscal Q1 2021 results on Wednesday, April 14. We expect JPMorgan to likely beat the consensus estimates for revenues and earnings. The bank has outperformed the consensus estimates in each of the last three quarters, primarily driven by a jump in the Corporate & Investment Banking segment led by higher sales & trading and investment banking revenues. However, the above growth was partially offset by some weakness in the Consumer & Community Banking segment due to the lower interest rates environment. We expect the sales & trading and investment banking revenues to drive the first-quarter FY2021 results as well. Further, recovery in bond yields over the recent months is likely to benefit core-banking revenues. Additionally, JPM released $2.9 billion from its loan-loss-reserve in the fourth quarter, suggesting some improvement in the perceived loan default risk. We expect the same momentum to continue in the first quarter.
Our forecast indicates that JPMorgan’s valuation is around $143 per share, which is 7% lower than the current market price of around $154. Look at our interactive dashboard analysis on JPMorgan’s pre-earnings: What To Expect in Q1? for more details.
(1) Revenues expected to be marginally ahead of the consensus estimates in Q1
Trefis estimates JPMorgan’s fiscal Q1 2021 revenues to be around $30.21 billion, marginally above the $30.12 billion consensus estimate. The bank’s full-year 2020 revenues of $119.5 billion were 4% higher than the 2019 figure. This was mainly due to its strength in sales & trading and investment banking businesses, which benefited from high trading activity and a jump in underwriting deal volume, respectively – sales & trading (up 39% y-o-y) and investment banking (up 23%). That said, JPM has a sizable loan portfolio and is very sensitive to changes in interest rates. It drives around 45% of its revenues from net interest income, which suffered a drop of 5% y-o-y in 2020 due to interest rate headwinds and lower consumer spending levels. While the sales & trading and investment banking segments are expected to follow the same trend in the first quarter, core banking revenues are likely to see some recovery due to some improvement in the consumer spending levels and bond yields.
Although the consumer spending levels are expected to improve with recovery in the economy, interest rates are unlikely to see an immediate revival to the pre-covid-19 levels. Further, sales & trading and investment banking revenues are likely to normalize in the subsequent quarters. This is likely to restrict the bank’s revenues to $117.2 billion in FY2021. Our dashboard on JPMorgan revenues offers more details on the company’s segments.
2) EPS likely to beat the consensus estimates
JPMorgan Q1 2021 adjusted earnings per share (EPS) is expected to be $2.98 per Trefis analysis, almost 2% above the consensus estimate of $2.93. The bank increased its provisions for loan losses from $5.6 billion to $17.5 billion in 2020, to compensate for the higher risk of loan defaults due to the Covid-19 crisis. This was the main reason behind a drop in profitability despite the growth in revenues. That said, with positive news on the vaccine front and another round of government stimulus, signaling lower loan default risk, JPM released $2.9 billion from its loan loss reserve in the fourth quarter of 2020. Further, we expect the same trend to continue in the first quarter, boosting JPMorgan’s profitability.
Given the expected mass distribution of the Covid-19 vaccine and potential improvement in the economic conditions, provisions for credit losses are likely to see a favorable drop in the year. This will enable the bank to report an EPS of around $10.55 in FY2021.
(3) Stock price estimate 7% lower than current market price
Going by our JPMorgan valuation, with an EPS estimate of around $10.55 and a P/E multiple of just below 14x in fiscal 2021, this translates into a price of $143, which is 7% below the current market price of around $154.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
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