JPMorgan Stock To Edge Past Revenue Estimates in Q2, Earnings To Miss Consensus

JPM: JP Morgan Chase logo
JP Morgan Chase

JPMorgan (NYSE: JPM) is scheduled to report its fiscal Q2 2021 results on Tuesday, July 13. We expect JPMorgan to edge past the consensus estimates for revenues, while the earnings will likely remain below the expected figure. The bank has surpassed the consensus estimates in the last quarter, with the sales & trading and investment banking revenues driving the top-line and a release of loan-loss reserves supporting the bottom line. On the flip side, the lower interest rate environment continued to hurt the net interest income (NII) in the first quarter, as well. We expect the same trend to drive the second-quarter FY2021 results. Further, recovery in customer spending levels is likely to benefit the core-banking revenues.

Our forecast indicates that JPMorgan’s valuation is around $163 per share, which is 6% above the current market price of around $153. Look at our interactive dashboard analysis on JPMorgan’s pre-earnings: What To Expect in Q2? for more details. 

(1) Revenues expected to be marginally ahead of the consensus estimates in Q2

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Trefis estimates JPMorgan fiscal Q2 2021 revenues to be around $30.10 billion, marginally above the $29.85 billion consensus estimate. The bank’s full-year 2020 revenues of $119.5 billion were slightly more than the 2019 figure, primarily driven by growth in sales & trading and investment banking businesses. It was partially offset by a 5% y-o-y drop in NII due to interest rate headwinds and a decline in new loan issuance. The same momentum continued in the first quarter of 2021 as well, with JPMorgan reporting total revenues of $32.3 billion – up 14% y-o-y. This could be attributed to a 46% y-o-y rise in corporate & investment bank revenues and a 6% drop in the community and consumer banking segment. We expect the sales & trading and investment banking to continue their growth trajectory in the second quarter, followed by some recovery in consumer spending levels.

The interest rates are unlikely to recover to the pre-Covid-19 levels anytime soon, negatively impacting the net interest income. Further, sales & trading and investment banking revenues are linked to trading volumes and underwriting deal volumes, which are likely to normalize in the subsequent quarters. Overall, the total revenues are expected to remain around $119.5 billion in the year. Our dashboard on JPMorgan’s revenues offers more details on the company’s segments.

(2) EPS likely to miss the consensus estimates

JPMorgan Q2 2021 adjusted earnings per share (EPS) is expected to be $2.93 per Trefis analysis, almost 6% below the consensus estimate of $3.11. Due to the Covid-19 crisis, the loan repayment capability of JPM’s customers suffered in 2020. As a result, the firm increased its provisions for loan losses to compensate for the risk, which weighed on its profitability figures – EPS was reduced from $10.72 to $8.88 in 2020. That said, the bank has lowered its provisions over the recent quarters, including the release of $5.2 billion in loan-loss reserve in the first quarter of 2021. Notably, the reserve release was the main reason behind the spike in the first quarter EPS. The favorable drop in provisions could be attributed to a few clear reasons: improvement in the economic conditions, the approval of the $1.9 trillion stimulus check plan, and accelerated Covid-19 vaccination drive in the U.S. Further, we expect the same trend to drive the second quarter profitability numbers.   

Overall, JPM adjusted net income in the year is likely to be around $32.6 billion – up 19% y-o-y. This will enable the bank to report an EPS of around $10.95 in FY2021.

(3) Stock price estimate 6% more than current market price

Going by our JPMorgan valuation, with an EPS estimate of around $10.95 and a P/E multiple of just below 15x in fiscal 2021, this translates into a price of $163, which is 6% above the current market price of around $153.

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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