JPMorgan (NYSE: JPM) is scheduled to report its fiscal Q4 2021 results on Friday, January 14, 2022. JPMorgan expects to beat the consensus estimates for revenues and earnings. The bank outperformed the expectations in the last quarter, driven by growth in the corporate & investment banking and asset and wealth management businesses. However, the above growth was largely offset by a 3% y-o-y decrease in the consumer & community banking unit – the largest segment by revenue share. We expect the same trend to continue in the fourth quarter.
1) Revenues expected to edge past the consensus estimates:
JPMorgan’s revenues for full-year 2020 were $119.5 billion – up 4% y-o-y, mainly driven by strong growth in the corporate & investment banking segment, partially offset by negative growth in consumer & community banking business.
The corporate & investment banking segment, which includes sales & trading and investment banking businesses, grew 26% y-o-y in 2020. This was due to higher trading and underwriting deal volumes. While the segment did post a cumulative growth of 6% y-o-y over the first nine months of 2021, it was primarily due to growth in investment banking and equity trading revenues.
The firm posted a 7% y-o-y drop in the consumer & community segment to around $51.3 billion in 2020. It was because of interest rate headwinds, a decrease in outstanding loan balances, and lower consumer spending levels. As a result, its revenue share decreased from 48% to 43%. Notably, the cumulative nine months revenues were down 2% y-o-y to $37.8 billion. We expect the unit to see some improvement in the fourth quarter, driven by growth in loan balances.
The asset & wealth management revenues grew 5% y-o-y in 2020. The growth momentum continued in 2021, with nine months’ revenues increasing 20% y-o-y to $12.5 billion. It was because of strong cumulative net fund inflows and higher net investment valuation gains. We expect the fourth-quarter results to be on similar lines.
Overall, JPMorgan’s revenues expectations are to remain around $123.1 billion for the full-year FY 2021.
Trefis estimates JPMorgan’s fiscal Q4 2021 revenues to be around $30.69 billion, 3% above the $29.86 billion consensus estimate. We expect the growth in investment banking, equity trading, and asset & wealth management revenues to drive the fourth-quarter results.
The Federal Reserve is likely to introduce multiple interest rate hikes in 2022, improving the net interest spread of banks. JPMorgan’s core-banking revenues are likely to benefit from this move. Further, investment banking and sales & trading are likely to experience higher volumes for some more months, before normalizing with recovery in the economy.
2) EPS is likely to beat the consensus estimates:
JPMorgan’s Q4 2021 adjusted earnings per share is expected to be $3.19 per Trefis analysis, almost 6% above the consensus estimate of $3.00. The bank reported a 21% y-o-y fall in the adjusted net income to $27.4 billion in 2020. It was due to a significant increase in the provisions for credit losses from $5.6 billion to $17.5 billion. That said, JPM has reduced its provisions figure in the first three quarters of 2021 to -$8 billion. As a result, the nine months’ cumulative EPS figure improved from $5.10 to $12.05. We expect the fourth-quarter earnings to remain below the year-ago level, as the provisions figure is unlikely to see a substantial decrease in Q4. Overall, JPMorgan is likely to report an adjusted net income of $45 billion and annual EPS of $15.23 for full-year 2021.
3) Stock price estimate 3% above the current market price:
JPMorgan’s valuation, using an EPS estimate of around $15.23 and a P/E multiple of just above 11x in fiscal 2021. This translates into a price of $172, which is 3% more than the current market price of close to $167.
JPMorgan Long (Buy)
Enter at: 169.78