The picnic tables are cleared, the fireworks are spent and the Fourth of July-shortened week has come and gone. That means Wall Street is back to a full slate of action including the start of the second-quarter earnings season, ushered in by JPMorgan Chase & Co. (ticker: JPM) and a host of other big bank stocks.
And while Bank of America Corp. ( BAC) and Wells Fargo & Co. ( WFC) have been the two Big Four banks of interest over the past year or so, investors would do well not to overlook JPM stock, which has surged more than 10 percent to trample its peers and currently sits at all-time highs just below $94 per share.
The headline numbers. It’s pretty clear from analysts’ top- and bottom-line expectations for JPMorgan’s second quarter that much of the recent run-up likely has little to do with second-quarter report anticipation.
Wall Street’s consensus estimate is for JPM to grow earnings a mere 3 percent to $1.60 per share. That’s expected to come on a slight decline in revenue to $25.11 billion. These expectations feel like a sour outlier, in fact, when compared to full-year estimates that see JPM expanding the top line by 6 percent and pushing profits more than 14 percent higher.
[See: 11 Ways to Buy Bank Stocks.]
No, much of the recent run-up in JPM stock — much like the rest of America’s big banks — has come courtesy of the most recent round of stress tests (and the bounty that will be released to shareholders as a result.)
Show us the money! Each of the nation’s 34 largest banks passed the Federal Reserve’s stress tests — the first unanimous passage since the tests began in 2011 — so JPMorgan doesn’t stand out on that basis. However, the Fed requires the nation’s banks to have at minimum 4.5 percent common equity tier 1 capital ratio, and JPMorgan’s 9.1 percent not only is double that figure but puts it in the top half of tested banks and ahead of mega-sized peers such as BAC, Wells Fargo and Goldman Sachs Group ( GS).
But what really excited investors was the Fed’s thumbs-up for JPMorgan to open the cash spigot a bit more. JPM plans on boosting its dividend by 12 percent to 56 cents per share effective as of the third quarter; that would be good for a roughly 2.4 percent yield at current prices. JPMorgan also intends on executing one of the richest stock repurchase plans among its peers, at $19.4 billion between July 1, 2017, and June 30, 2018.
This news, and similar announcements across the sector, send bank stocks roaring ahead during the last week of June. That — as well as hopes for dwindling regulations under President Donald Trump — prompted Jefferies to make a broad buy call on the financial space last week.
However, Jefferies’ specific picks included Bank of America, US Bancorp ( USB), Huntington Bancshares ( HBAN) and Keycorp ( KEY) … but not JPM. And not everyone thinks the recent party is meant to last.
Is JPM stock a “sell the news” concern? A day after Jefferies’ bull call, Roosevelt Investments senior portfolio manager Jason Benowitz told CNBC that the currently rally in the financial sector isn’t sustainable.
“We think the yield curve will stay relatively flat … and that will pressure bank earnings,” he says, specifically pointing out that low inflation could hinder the Fed from continuing to hike interest rates — one of the biggest drivers for bank stocks over the past year or so.
Moreover, he warns about “choppy” loan growth, which his firm believes “may slow down again.”
That’s a blanket worry for the next few months and through next year, but at least one analyst isn’t too excited about what JPMorgan may report come Friday morning.
Keefe, Bruyette and Woods’ Brian Kleinhanzl recently hacked the firm’s earnings estimate for JPMorgan’s second quarter from $1.69 per share to $1.57 per share.
[Read: Financial Sector Is Positioned to Lead Stocks Higher.]
The firm, which downgraded JPM to “hold” in January, is broadly worried about interest rates affecting net interest income in the quarter — the 10-year’s rate of 2.25 percent in the second quarter was much lower than KBW’s original forecast of 2.65 percent. However, the primary concern is trading revenue.
JPM stock very well could breach $100 sometime in 2017. However, a relatively calm second quarter amid already low expectations may have shut the door on any hopes that second-quarter results will encourage bulls to keep buying.
Expect a so-so quarter to spark selling in JPMorgan, or at least a pause at its current peak.
More Earnings in Focus
Wells Fargo & Co. Wells Fargo is making considerable headway as it moves on from last year’s fraudulent account scandal that kept shares from squeezing all the juice out of the late 2016-early 2017 run on bank stocks. WFC stock is at multimonth highs, buoyed in part by passing its stress test and getting the Fed’s OK to bump the dividend to 39 cents per share and buy back $11.5 billion worth of stock. However, expectations for WFC’s second quarter aren’t much to look at, with the pros projecting flat earnings of $1.01 per share on a 1.3 percent bump to the top line, to $22.46 billion, when the company reports Friday morning.
Citigroup (C). Citigroup enjoyed a late June surge after getting the go-ahead to double its dividend and buy back $15.6 billion worth of shares, but it also received an off-earnings upgrade from “sell” to “neutral” earlier in the month, as UBS pulled back from its bullish case and admitted “global growth looks resilient.” Citigroup now sits at highs last seen in late 2008 amid the stock’s plunge from a split-adjusted peak around $550. To keep up the momentum, Citigroup needs to clear a low bar set by Wall Street, which sees profits dipping 1.6 percent to $1.22 per share on a 0.5 percent revenue decline to $17.46 billion.
This Week’s Earnings Calendar
Monday. Barracuda Networks ( CUDA), WD-40 Co. ( WDFC)
Tuesday. PepsiCo ( PEP)
Wednesday. Bank of the Ozarks ( OZRK), Fastenal Co. ( FAST)
Thursday. Taiwan Semiconductor Manufacturing Co. Ltd. ( TSM)
[See: 9 Times Politics Directly Impacted the Stock Market.]
Friday. Infosys Ltd. ( INFY), PNC Financial Services Group ( PNC)
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JPMorgan Chase & Co. (JPM) Stock Rolls Toward $100 Per Share originally appeared on usnews.com