By Brendan Gilmartin
JP Morgan Chase (NYSE:JPM) is scheduled to report 4Q 2013 earnings before the bell on Tuesday, January 14. The results are typically released at 7:00 a.m. EST with a conference call slated to follow at 8:30 a.m. JP Morgan Chase is the first among the major U.S. financial institutions to report quarterly results. Therefore, the numbers could have a significant impact in the trading of other names in the financial sector, as well as U.S. index futures and other broad market securities.
Outliers & Strategy
Note that JP Morgan reached a $13 billion settlement related to its activities in the mortgage-based securities market. This could result in a charge against earnings. Therefore, Earnings Per Share Ex-Items is more likely to be the measure that produces the value that is comparable to Street estimates.
The current Street estimate is $1.35 per share (Source: Yahoo! Finance). Given the magnitude of the recent run-up in JP Morgan shares (up 14% since early November), look for a figure closer to the high estimate of $1.45 in order to sustain the upward momentum. The options market is currently pricing in a 2.5% move off earnings.
Revenues: Selerity produces the value from the table: "Managed Basis - Total Net Revenue." The current Street estimate is $23.68 bln, a 2.8% decrease from the year-ago period.
- 01/09: Nomura initiated coverage on JP Morgan with a Neutral rating, according to a post on Benzinga, based in part on weaker mortgage banking and pressure in FICC.
- 01/08: Jefferies issued a positive note on JP Morgan, according to a post in Barron's Online, suggesting that recent litigation risks are now behind the banking giant, while the shares trade at an attractive multiple.
- 01/02: Citigroup raised its price target on JP Morgan to $72 and expects the firm to top estimates for 4Q 2013, according to a post on Barron's Online.
- 12/09: JPMorgan declared a quarterly dividend of $0.38 per share, bringing the yield to 2.60%.
- 11/19: JPMorgan reached a $13 billion settlement in principle relating to residential mortgage-backed securities (RMBS) activities by JPMorgan Chase, Bear Stearns and Washington Mutual.
JP Morgan Chase shares have been on a tear over the past several months, touching a multi-year high, ahead of the 4Q earnings release. Given the recent run-up, look for earnings to exceed the high end of Street estimates (consensus is $1.35/high number on the Street is $1.45) on order to extend the advance and carry the shares back above the $60 level. A flat to weaker than expected results could drag the shares to initial support near $58, followed by the 50-Day SMA near $56. (Chart courtesy of StockCharts.com).
JP Morgan Chase shares are at a multi-year high, benefiting from an improving lending backdrop, share repurchases, strengthening economic conditions, stronger credit quality, and a fortress balance sheet. Given the recent strength and the positive sentiment surrounding JP Morgan, the bar is set quite high this earnings period. In order to push the shares beyond the recent 52-week high near $59.50, look for earnings well above $1.50 per share (consensus is $1.35) with a solid revenue figure. Conversely, a disappointing EPS result is likely to spark a pullback in the shares given the elevated expectations.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.