Is JPMorgan Stock a Buy After Its Earnings?
July 21 2022 - 7:40AM
Finscreener.org
It’s not often that you see a
stock gain 4.6% after it missed analyst estimates on earnings. But
that’s exactly what happened to JPMorgan
Chase (NYSE:
JPM) stock on July 15. The bank reported its
numbers for Q2 2022 on Thursday, July 14, and the stock fell 3.5%.
However, the very next day, it surged upward. What changed
overnight?
There were two major reasons for
this upward movement. The first one was that its peers, like
Citigroup (NYSE: C)
and Wells Fargo (NYSE:
WFC) reported numbers
that infused confidence in markets when it came to bank
stocks.
The second reason was that
normally-hawkish members of the U.S. Fed said they would support a
hike of 75 basis points for interest rates at the Fed meeting next
month. Fed Governor Christopher Waller and St. Louis Fed President
James Bullard gave the markets a pleasant surprise after these
announcements. Markets were expecting a hike of 1 full percentage
point.
A look at JPM’s Q2 earnings
JPM’s revenue came in almost flat
at $30.7 billion for Q2 compared to estimates of $31.81 billion.
Its earnings per share were down 27% to $2.76 compared to forecasts
of $2.92. Its net income came in at $8.65 billion, a fall of 28%
from the same quarter last year. As interest rates have risen and
the housing market has cooled down, the bank was compelled to
reduce its employee base in its mortgage division.
The
biggest bank stock
in the U.S. saw its gross investment
banking revenue fall 32% to $788 million. It also increased
provisions for credit losses to $1.1 billion. The company said that
it has temporarily suspended share buybacks as the focus shifts to
increasing capital and its capital ratios in order to meet
potentially higher requirements in 2023 and 2024.
JPMorgan is a blue-chip stock
On the whole, CEO Jamie Dimon is
positive about the business and the environment. During the
earnings call with analysts, Dimon said, “We invest. We grow. We
expand. We manage through the storm and stuff like that.” He added,
“Consumers are in good shape. TheyU+02019re spending money. They
have more income. Jobs are plentiful. TheyU+02019re spending 10%
more than last year — almost 30% plus more than
pre-Covid.”
However, this outlook came with a
warning as well. Dimon explained, “But geopolitical tension, high
inflation, waning consumer confidence, the uncertainty about how
high rates have to go and the never-before-seen quantitative
tightening and their effects on global liquidity, combined with the
war in Ukraine and its harmful effect on global energy and food
prices are very likely to have negative consequences on the global
economy sometime down the road.”
This isn’t the first time Dimon
has warned of a tough environment. In June, he said that an
economic hurricane was approaching. Clearly, now he feels that the
hurricane has moved closer.
Banks do well in a mildly
inflationary environment. When the Fed raises interest rates, banks
follow suit, and mortgages, cars, and credit cards become slightly
more expensive. Higher interest rates are good for a bank’s bottom
line. However, if inflation goes up too much too quickly, consumers
cut down on expenses, and borrowings fall, which negatively impacts
a bank’s numbers.
What next for JPM stock and investors?
Shares of JPMorgan are currently
priced at $114.5, and the consensus target on the stock is $163.24,
a potential upside of 44.52%. JPM has lost 30.15% in 2022, and the
stock is trading at a solid discount.
Over the last 5 years, JPM stock
has returned a total of 45% to its shareholders, while the
S&P 500 has moved up 71% in the same period. Clearly, the
stock is a laggard by a wide stretch. Could the coming months see
JPM stock outperform the broader markets? It seems possible. The
bank has factored in a lot of headwinds in the near future and has
taken steps to mitigate them. There is a possibility that the stock
might fall further, but it could just be another buying
opportunity.
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