JPM is reporting earning pre-market tomorrow. The company is expected to deliver 16 B in revenue. The bottom-line consensus number is currently at 95 cents according to Yahoo estimate. The consensus estimate has been rising as investors have been expecting favorable result from Investment Banking area.
I expect the company to deliver about 1 to 2 cents above the EPS estimate. However, this will be good enough for the company to pave its way to break above $50 level. This is not a volatile stock and should provide you with solid exposure to the financial sector. The reason for my optimism is the pessimistic stance that Wall Street is taking on the banking sector in general. The banking sector has been facing inverted yield curve and extremely compressed NIM (Net Interest Margin). As a result, investors expect that consumer banking segment business of JPM will drag down JPM's earning. Also, investors realize that last Q IB (Investment Banking) revenue included one time large gain from Amaranth hedge fund asset selling. This Q, gain of this nature is likely to be absent and investors are wondering how the company would fare in IB side compared to the last Q. In addition, continued downfall in the housing sector is also likely to pressure JPM's mortgage business. Overall, investors are very cautious heading into the earning given 10% premium of JPM PE valuation compared to its peers such as C and BAC. Earning expectation, as a result, is somewhat subdued and JPM may not have to deliver the earning that far exceeds the consensus estimate for the shares to establish upward trend.
In my opinion, JPM has several areas where the earning surprise may happen. Last Q was the exceptionally strong for M&A activities. You recall investors were disappointed by Goldman Sachs IB earning during this exceptionally strong time where private equity and M&A activates were at a record pace. Guess who was second just behind GS in M&A deals. It is JPM. I believe JPM IB business could deliver moderate upside for the investors. In addition, consumer spending continues to be brisk. JPM's credit card business is solid, helping the company to achieve higher than expected bottom-line performance. JPM has a very low exposure to sub-prime loan business. As such, mortgage business steep drop may be over-stated. In addition, last Q, the mortgage rate remained well below Fed fund rate as the investors anticipated the Fed rate cut. This may have spurred the mortgage refinance activities and help JPM to offset the weakness in the consumer banking unit.
Overall, I see JPM heading into favorable risk to award situation and I think you should own JPM heading into the earning. If you see weakness in the morning (given INTC earning disappointment), I want you to buy with long term outlook. I continue to see JPM will execute on the operation performance and as the company will exit this harsh period of inverted yield curve by the end of the year, the earning growth will likely to accelerate.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also analysis is available at www.investorhives.com under FilthyRich hive. Thank you for visiting my blog.
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