JPMorgan (JPM – Free Report) is scheduled to kick start fourth-quarter 2024 earnings on Jan. 15. The largest American bank’s earnings draw a lot of attention because of its presence in almost all finance sector businesses, offering insights into how the quarterly performance of other banks is likely to be.
Among JPMorgan’s close peers, Citigroup (C – Free Report) is slated to announce quarterly numbers on Jan. 15, while Bank of America (BAC – Free Report) will come out with its performance details on Jan. 16. Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
JPM’s third-quarter performance was solid despite industry-wide operating challenges. This time, we believe the company’s performance will remain decent. The Zacks Consensus Estimate for fourth-quarter revenues of $40.92 billion suggests 6.1% year-over-year growth.
In the past seven days, the consensus estimate for earnings for the to-be-reported quarter has been revised 2.3% upward to $3.95. This indicates a marginal decline from the prior-year quarter as rising provisions for credit losses and higher operating expenses are likely to have hampered JPMorgan’s bottom-line growth.
Estimate Revision Trend
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JPMorgan has an impressive earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, with the average beat being 7.73%.
Earnings Surprise History
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Major Factors to Influence JPMorgan’s Q4 Performance
Net Interest Income: In the fourth quarter, the Federal Reserve cut interest rates by 50 basis points to 4.25-4.5%. This, along with the rate cut in September, is likely to have offered some support to JPMorgan’s net interest income (NII) as the rise in funding/deposit costs declined.
Also, clarity on the Fed’s rate cut path and the stabilizing macroeconomic backdrop are likely to have provided support to the lending scenario. Per the Fed’s latest data, the demand for commercial and industrial, real estate and consumer loans was decent in the first two months of the quarter.
Management expects NII (reported) to be almost $22.9 billion in the fourth quarter.
The Zacks Consensus Estimate for NII (reported) of $22.88 billion suggests a 4.9% decline on a year-over-year basis. Our estimate for NII implies a fall of 4.7% to $22.93 billion.
Investment Banking (IB) Fees: Global mergers and acquisitions (M&As) in the fourth quarter of 2024 showed marked improvement after subdued 2023 and 2022. This is expected to have supported JPMorgan’s IB fees.
Both deal value and volume were robust during the quarter, driven by solid financial performance, robust U.S. economic growth, buoyant markets and interest rate cuts. Also, the potential easing of regulatory oversight on M&As by the incoming Trump administration fueled deal-making activities. Yet, lingering geopolitical issues were a headwind. JPMorgan’s leadership in the space is likely to have supported advisory fees.
Also, the IPO market saw signs of cautious optimism, given the market volatility, geopolitical challenges and global monetary easing. The impressive equity market performance drove some solid activity in follow-up equity issuances. Further, bond issuance volume was decent on favorable economic conditions and corporate spreads at near historical lows despite seasonally slow volumes in December. Thus, growth in JPM’s underwriting fees (accounting for almost 60% of total IB fees) is expected to have been solid during the to-be-reported quarter.
Management expects IB revenues (in the Corporate & Investment Banking segment) to jump 45% on a year-over-year basis.
The consensus estimate for IB revenues (in the Corporate & Investment Banking segment) of $2.55 billion implies an increase of 43.1% from the prior-year quarter. We expect the metric to be $2.59 billion.
Markets Revenues: Client activity and market volatility were solid in the fourth quarter. The likelihood of a strong economic expansion, gradually cooling inflation and easing monetary policy drove the client activity. Further, volatility was high in equity markets and other asset classes, including commodities, bonds and foreign exchange. So, JPMorgan is likely to have recorded decent growth in markets revenues (comprising nearly 20% of the company’s total revenues) this time.
Management expects markets revenues in the fourth quarter to rise 15% year over year.
The Zacks Consensus Estimate for equity markets revenues is pegged at $2.12 billion, suggesting a rise of 24.4% from the prior-year quarter. The consensus estimate for fixed-income markets revenues of $4.18 billion indicates year-over-year growth of 2.8%. We project equity markets revenues and fixed-income markets revenues of $2.56 billion and $4.25 billion, respectively.
Mortgage Banking Fees: Despite interest rate cuts by the central bank, mortgage rates did not come down significantly. The rates were close to 6.8% at the end of the fourth quarter. As such, refinancing activities and origination volume remained decent. Thus, mortgage banking fees are likely to have witnessed some improvement at JPMorgan.
The consensus estimate for mortgage fees and related income of $395.6 million implies a 50% jump from the prior-year quarter. Our estimate for the metric stands at $390.8 million.
Expenses: JPMorgan’s plan of entering new markets by opening branches, which is already on track, along with inorganic expansion efforts, is likely to have resulted in an increase in operating expenses in the fourth quarter. Also, investments in technology to strengthen digital offerings might have led to higher costs.
Management anticipates adjusted non-interest expenses to be almost $23 billion for the to-be-reported quarter. Our estimate for non-interest expenses stands at $22.94 billion.
Asset Quality: JPMorgan is likely to have set aside a substantial amount of money for potential delinquent loans (mainly commercial loan defaults), given the expectations of higher for longer interest rate backdrop. Our estimate for provision for credit losses is pegged at $2.66 billion.
The Zacks Consensus Estimate for non-performing loans (NPLs) of $8.46 billion implies a 22.2% increase year over year. The consensus estimate for non-performing assets (NPAs) of $9.05 billion suggests a 19.2% rise. Our estimates for NPAs and NPLs are pegged at $8.42 billion and $7.92 billion, respectively.
JPM Management Guidance for 2024
Management expects NII to be approximately $92.5 billion compared with $89.3 billion reported in 2023.
Management expects adjusted non-interest expenses to be almost $91.5 billion. The figure includes the increase in the FDIC special assessment in the first quarter and the Foundation contribution in the second quarter. Also, it plans to spend roughly $17 billion on technology, up 9.6% year over year.
For 2024, card NCO rates are expected to be approximately 3.4%.
Further, it expects deposits across the franchise to be relatively flat and loan growth to be modest.
What Our Model Unveils for JPMorgan
Per our proven model, the chances of JPMorgan beating estimates this time are high. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. That is the case here, as you can see below.
JPMorgan has an Earnings ESP of +3.20%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
JPM carries a Zacks Rank #3 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
JPM’s Price Performance & Premium Valuation
In the fourth quarter, JPMorgan shares performed impressively. The stock outperformed the S&P 500 Index and its close peers – BAC and C.
4Q24 Price Performance
Image Source: Zacks Investment Research
Given the rally in JPM shares, it appears expensive relative to the industry. The stock is, at present, trading at the forward 12-month price/earnings (P/E) of 14.48X. This is above the industry’s 14.08X, reflecting a stretched valuation.
Price-to-Earnings F12M
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What to Do With JPMorgan Shares Ahead of Q4 Earnings?
JPMorgan is well-placed to benefit from its scale and size, and leverage its leading position in several businesses. The acquisition of First Republic Bank in 2023 continues to support its financials. The company is expanding its footprint in new regions and plans to capitalize on cross-selling opportunities. While such expansion plans will lead to higher investment-related expenses, they bode well for the company’s long-term prospects and will provide it an edge over its peers.
Yet, the volatile nature of the capital markets business will likely keep JPM’s fee income growth challenging. The stock’s high valuation weighs on it.
Hence, investors must check management comments regarding this year’s NII prospects during the fourth-quarter 2024 conference call before making any investment decision. Also, they should keep an eye on macroeconomic factors and policy matters that are likely to influence the company’s future performance.
Those who already own JPM stock can hold on to it because it is less likely to disappoint over the long term. However, those who intend to buy the stock should consider the above-mentioned factors carefully and evaluate their risk tolerance before investing.
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