J.P. Morgan is set to report Q1 earnings tomorrow before the market opens with a conference call to follow at 8:30am ET. 

Current Capital IQ consensus stands at EPS of $1.52 on Revenue of $24.348 bln.

Shares of JPM had an impressive rally at the end of 2016 following the Trump victory. The notion of lighter regulations and pro-growth policies being a key driver. JPM rallied 36% hitting an all-time high of $93.98 on March 1. The stock has since rolled back to the $85 area ahead of the report.

The XLF has rallied 29% compared to 15% in the SPY since November. But concerns over stock prices getting ahead of themselves have led to the XLF being negative on the year (relative underperformance to the SPY).

Key Metrics and Guidance

  • Return on Equity- Q4 was 13%; JPM is targeting a 15% RoE. 
  • Loan Growth- JPM expects 10% y/y loan growth in 2017; Loans were up 12% in Q4. 
  • Q1 Market revenue is expected to be up modestly y/y.
  • IB Revenue is expected to be in line with Q4 (~$8.46 bln). 
  • Net Interest Income- Q1 is expected to be up q/q (Q4 $6.7 bln); JPM has projected 2017 NII to be higher $3 bln y/y. 
  • Charge Offs- Expects net total charge offs of $5 bln in 2017; The charge-off came in for the year at 2.63% which is in line with the guidance that was given in November; For 2017 JPM sees ~2.75%. 

 

2017 Targets

  • ~15% RoTCE 
  • 11% CET1 Ratio (2016 12.2%) 12.2% CET1 ratio at 2016 year-end; Aim to remain within 11-12.5% corridor in the medium-term.
  • Implies payouts between 80-120% using analyst estimates for the next two years 55%
  • Overhead Ratio 55-75% 
  • Net payout ratio (2016 65%)
  • Core Loan Growth- Expect 2017 YoY average core loan growth of ~10%. 
  • NCO Rates- Expect 2017 and medium-term NCO rates to remain relatively flat across businesses with the exception of Card and CIB.
  • Card- seasoning of newer origination vintages will drive loss rates modestly higher, but at higher risk adjusted margins.

TECHS:

After breaking out of a large wedge JPM got confirmation of this breakout with the Trump election. This has led shares to rally 36% since the election. Though it has stagnated, it remains the best stock of the group (in my opinion) along with PNC (which also reports).