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JPMorgan Long

by SignalFactory   ·  January 14, 2021 | 13:56:14 UTC  

JPMorgan Long

by SignalFactory   ·  January 14, 2021 | 13:56:14 UTC  

Investment Banking fees, one of the main sources of revenues for JPMorgan, are expected to have witnessed a significant rise in fourth-quarter 2020. Thus, this is likely to have provided much-needed support to the bank’s results, slated to be announced on Jan 15.

Investment Banking income basically comprises advisory fees (generated from M&As and business restructuring) and underwriting revenues (equity and debt). Let us check how these are likely to have been in the to-be-reported quarter.

After a disappointing first-half 2020 performance mainly due to the coronavirus pandemic, there was a strong recovery in the deal-making activities. During the fourth quarter, the number of announced M&As jumped. Thus, as global M&A activity rebounded during the quarter, JPMorgan’s advisory fees are likely to have been favorably impacted. Also, the bank’s leadership in the space is likely to have offered some leverage.

Also, considering the pandemic, many companies began the business restructuring process intending to maintain profitability. This is likely to have aided the rise in JPMorgan’s advisory fees as well.

Further, IPO activity was robust. In fact, the fourth quarter of 2020 was one of the busiest in the recent past. Several techs and healthcare firms along with Special Purpose Acquisition Companies entered the markets. Additionally, driven by favorable markets, several companies shored up their balance sheets through follow-up equity issuances.

Likewise, bond issuance volume has been strong in the fourth quarter along with decent growth in debt issuances. Hence, JPMorgan’s equity underwriting fees and debt origination fees (accounting for almost 60% of total Investment Banking fees) are expected to have increased in the fourth quarter.

Also, at an investor conference in early December 2020, management provided an upbeat outlook related to Investment Banking revenues. The bank expects the same to be up 20% year over year. The Zacks Consensus Estimate for Investment Banking fees of $2.12 billion indicates a 14.8% rise from the prior-year quarter’s reported number.

Q4 Earnings & Sales Projections:

For JPMorgan, the Zacks Consensus Estimate for earnings has been revised 7.5% upward to $2.72 over the past seven days. The projected figure indicates a growth of 5.8% from the year-ago reported number. The consensus estimates for sales of $29.28 billion suggests a 3.4% rise.

Our Take:

During the fourth quarter, the operating backdrop was challenging. Weak loan demand and low-interest rates are likely to have hurt this Zacks Rank #1 (Strong Buy) stock’s top-line growth to some extent. However, solid performance, along with decent mortgage banking business and robust trading performance, might have offered support.

JPMorgan Long (Buy)

ENTER AT: 141.15

T.P_1: 145.71

T.P_2: 154.17

T.P_3: 164

S.L: 127.78  

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