With gains of more than 20% over the past six months and 21% in three months, shares of JPMorgan Chase (JPM) have been one of the better performing stocks in the financial sector. Despite the backdrop of a possible recession, the bank is being rewarded for several quarters of operating efficiency.
Investors want to know whether the bank can continue this momentum in the new year. While rate increases are beneficial to bank earnings, those events are not the only metrics investors are watching. The fear of a possible recession is front and center in deciding to invest is risk assets, particularly as there is already evidence of an economic slowdown in several areas. These topics will be answered when the company reports fourth quarter fiscal 2022 earnings results before the opening bell Friday.
JPMorgan has shown it can navigate these tough headwinds to return value to shareholders, producing strong third results with revenue growing by 10% year over year. The bank capitalized on higher interest rates, resulting in $17.5 billion of net interest income. With strong Q4 profitability guidance of $19 billion, the bank sees no signs of slowing down. At the current valuation of $137 per share, JPMorgan stock trades below the average price target of $143. For this perceived value to matter, the bank on Friday must deliver a top and bottom line, along with upbeat guidance.
For the three months that ended December, analysts expect the New York-based bank to earn $3.12 per share on revenue of $34.3 billion. This compares to the year-ago quarter when earnings came to $3.33 per share on revenue of $30.35 billion. For the full year, earnings are projected to decline 24% year over year to $11.66 per share, while full-year revenue of $130.46 billion would rise 4.1% year over year.
Offering a nice mix of earnings growth, income and value, JPMorgan has enjoyed a well-deserved reputation as being the best-executing bank among its peer group. The world’s largest bank by market cap, its business is intricately tied to the U.S. and to major extent, the global, economy. As such, inflationary pressures on consumers presents a potential headwind. The projected profit decline for both the quarter and full year reflects the challenging environment the bank has operated under.
On the whole, JPMorgan’s banking business has, nonetheless, shown modest improvements not only in margins but also in loan volumes which have offset weakness in areas like mortgage lending and rising expenses. This trend was again noticeable in the third quarter results when it delivered adjusted EPS of $3.12 per share, which not only surpassed Street estimates $2.85, it also was up from $2.76 earned sequentially.
Driven by higher interest rates, Q3 revenue was also strong, coming in at $32.7 billion, beating estimate by more than $1 billion. Revenues rose 14%, while expenses rose just 11%. That delta boosted its net interest margin, which provides a cushion against losses. This drove consumer profits to $4.3 billion, rising $1.2 billion sequentially. But it wasn’t all good news. Due to market volatility, the bank suffered on the Investment Banking side of the business with revenues falling 43% to $1.7 billion.
The struggles in the Investment Banking segment was understood and somewhat expected as market volatility hurts advisory and fee activity. On the whole, each of the banks four main business segments showed modest improvements. On Friday investors will want see continued improvements on these areas to assess the long-term value of JPMorgan stock. With EPS projected to grow annually at a rate of 9% in 2023, JPMorgan looks like a solid opportunity ahead of Q4 earnings, when factoring its 3.00% dividend yield.
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