Rates Reliant (JPM WFC Earnings Preview)
J.P. Morgan Chase (JPM) is set to report Q1 results tomorrow before the market opens with a conference call to follow at 8:30am ET.
Current Q1 Capital IQ consensus stands at EPS of $2.35, Net Income of $7.79 bln, and Revenue of $28.05 bln. This would represent yr/yr growth of 3% in EPS, a slight 1% decline in net income, 1% growth on the top line.
Early expectations are for the money center to see Q1 results run in line with expectations.
JPM did miss EPS in Q4, marking the first shortfall in 16 quarters. The higher than expected loan loss provision (card and wholesale adds) and lower fee income. Continued weakness at the Investment Bank also raised some red flags.
TECHS:
Shares of JPM did successfully test the psyche $100 level back on March 25. This was after the stock saw a swift decline after getting rejected at the 200-sma on March 19. The 200-sma now sits at $107.56, just two points away from the current price of $105.84. This trading range of $100-107.57 will be a key area to watch following the release of the Q1 earnings report.
Q4 Recap
Reported earnings of $1.98 per share, $0.21 worse than the S&P Capital IQ Consensus of $2.19.
Reported revenues rose 8.1% yr/yr to $26.1 bln vs the $26.69 bln S&P Capital IQ Consensus. Reported managed revs of $26.8 billion.
Book value per share of $70.35, up 5%; tangible book value per share of $56.33, up 5%.
Average core loans ex-CIB, up 6% yr/yr and 1% q/q. This was at the low end of the 6-7% range for 2019; We will await guidance on FY19.
The provision for credit losses was $1.5 billion, an increase of $240 million from the prior year. The increase was driven by higher net reserve builds in the current quarter in the Consumer and Wholesale portfolios.
Investment Banking
Fixed Income revenue $1.86 bln, down 16% yr/yr, 35% q/q
Equity Markets revenue $1.31 bln, up 15% yr/yr, down 17% q/q
Securities revenue $1.02 bln, up 1% yr/yr, down 3% q/q
PNC
PNC will report first quarter earnings tomorrow before the open. There is a conference call scheduled for 9:30 ET.
Q1 Capital IQ consensus calls for EPS of $2.60 (-2% qtr/qtr) on revenue of $4.26 bln (-1.7% qtr/qtr). For Q1, the company guided for stable average loans & net interest income. The company also guided for loan loss provision of $125-175 mln.
PNC is expected to update its revenue guidance for FY19 which currently stands at the "higher end of low single digit growth (Capital IQ consensus $17.63 bln or +3% yr/yr). FY19 Capital IQ consensus for EPS stands at $11.32 (+6.3% yr/yr).
TECHS:
Based on the PNC Apr12 $129 straddle, the options market is currently pricing in a move of ~3% in either direction by tomorrow.
On a positive report, look for resistance near the $131-132 level. Support sits first at the $125 level then near around $120.
PNC has a market cap of $58 bln and is trading at 11 times FY19 earnings vs USB at 12 times FY19 earnings.
WFC
Wells Fargo (WFC) will report first quarter earnings tomorrow before the open. There is a conference call scheduled for 10:00 ET.
Q1 Capital IQ consensus calls for EPS of $1.10 (-8% qtr/qtr) on revenue of $21.05 bln (roughly unchanged qtr/qtr).
The overall concerns in the financial sector include a weaker global economy leading to lower loan growth, a flattening yield curve impacting NIM/profitability, historically low credit levels starting to increase, and a slowdown in the mortgage markets. Wells Fargo has no international exposure.
Specifically for Wells Fargo, investors will be looking for more information on the search for a CEO after Tim Sloan stepped down two weeks ago. General counsel Allen Parker now serves as interim CEO
TECHS:
Based on the WFC Apr12 $49 straddle, the options market is currently pricing in a move of ~3% in either direction by tomorrow.
Look for resistance near the $49.50-50.50 level, while support sits near $47.
WFC has a market cap of $219 billion and trades at 10 times earnings versus USB and PNC at 11 times earnings. WFC's book value is 1.5x versus USB and PNC at near 2 times.
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