JPMorgan (NYSE: JPM) is expected to release its first quarter 2021 results on Wednesday, April 14. We expect JPMorgan to likely beat consensus estimates on revenue and profit. The bank has outperformed consensus estimates in each of the last three quarters, mainly due to a jump in the Corporate & Investment Banking segment, driven by higher revenues from sales and trading and investment banking . However, the above growth was partially offset by some weakness in the Consumer & Community Banking segment due to the lower interest rate environment. We expect sales and trading and investment banking income to also boost the first quarter of fiscal 2021 results. In addition, the rally in bond yields in recent months is expected to benefit core banking income. . Additionally, JPM released $ 2.9 billion from its loan loss reserve in the fourth quarter, suggesting some improvement in perceived default risk. We expect the same momentum to continue in the first quarter.
Our forecast indicates that JPMorgan valuation is about $ 143 per share, which is 7% less than the current market price of about $ 154. Check out our interactive dashboard analysis at JPMorgan Pre-Profits: What to Expect in Q1? for more details.
(1) Expected revenue slightly higher than consensus estimates in Q1
Trefis estimates JPMorgan’s first quarter 2021 revenue to be around $ 30.21 billion, slightly above the consensus estimate of $ 30.12 billion. The bank’s revenues for 2020 of $ 119.5 billion were 4% higher than in 2019. This is mainly due to the strength of its sales & trading and investment banking activities, which benefited from strong trading activity and an increase in subscription volume, respectively – sales & trading (up 39% year-on-year) and investment banking (up 23%). That said, JPM has a large loan portfolio and is very sensitive to changes in interest rates. It derives about 45% of its income from net interest income, which suffered a 5% year-on-year decline in 2020 due to headwinds in interest rates and lower consumer spending. While the sales & trading and investment banking segments are expected to follow the same trend in the first quarter, core banking income is expected to see some recovery due to some improvement in levels of consumer spending and bond yields.
While levels of consumer spending are expected to improve as the economy recovers, interest rates are unlikely to immediately return to pre-Covid-19 levels. In addition, sales and trading and investment banking revenues are expected to normalize in the coming quarters. This is expected to restrict the bank’s revenue to $ 117.2 billion in fiscal 2021. Our dashboard on JPMorgan turnover offers more details on the business segments.
2) EPS likely to exceed consensus estimates
JPMorgan’s adjusted earnings per share (EPS) in the first quarter of 2021 is expected to be $ 2.98 per Trefis analysis, nearly 2% above the consensus estimate of $ 2.93. The bank increased its loan loss provisions from $ 5.6 billion to $ 17.5 billion in 2020, to offset the higher risk of default due to the Covid-19 crisis. This is the main reason for the decline in profitability despite the growth in turnover. That said, with positive news on the vaccine front and another round of government stimulus, signaling a drop in the risk of default, JPM released $ 2.9 billion from its loan loss reserve in the country. fourth quarter 2020. Additionally, we expect the same trend to continue into the first quarter, increasing JPMorgan’s profitability.
Given the expected massive distribution of the Covid-19 vaccine and the potential improvement in economic conditions, provisions for credit losses are expected to decline favorably over the year. This will allow the bank to report EPS of around $ 10.55 in fiscal 2021.
(3) Estimate of the share price 7% lower than the current market price
Through our JPMorgan valuation, with an EPS estimate of around $ 10.55 and a P / E multiple just below 14x in fiscal 2021, that translates to a price of $ 143, which is 7% below the price current market of about $ 154.
Note: P / E multiples are based on the stock price at the end of the year and reported (or expected) adjusted earnings for the entire year
Do you think Bitcoin could disrupt the banking industry? Looking for the benefit of adopting Bitcoin, without buying into the cryptocurrency itself? Check out our theme on cryptocurrency stocks
See everything Trefis price estimates and To download Trefis data here
What is behind Trefis? See how this fuels the new collaboration and assumptions Finance Directors and Financial Teams | Product, R&D and marketing teams
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.