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Earnings: C, JPM and WFC Report Tomorrow

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April 12, 2017
Outside of a Bank
iStockphoto.com/assalve

Financial stocks surged following last year’s elections, but many of the bank stocks retreated slightly after hitting highs in early March. That retreat lined up with the failure of House Republicans’ efforts to repeal and replace the Affordable Care Act. It’s hard to say what policies will get passed through Congress and when, but banks and financial companies seem to have also benefited from the ongoing economic recovery and rising interest rates.

While there’s been a lot of talk about the future of interest rates, only a few analysts are talking about consumer expectations regarding interest rates and how that could potentially impact lenders. With interest rates not that far from historic lows, there is an expectation they will rise at some point in the future—by how much or when is the big unknown.  Some might think that if consumers are worried interest rates are going to rise quickly, they could decide to make larger purchases sooner to lock in current interest rates. A recent Consumer Reports article suggested “if you’re thinking of taking out a new fixed-rate mortgage, consider doing it sooner rather than later, when rates may be even higher.” Consumer expectations regarding future interest rates could explain why mortgage applications and new home sales continue to rise, even as interest rates creep up. 

Increased loan growth combined with potentially higher interest rates is generally a positive environment for banks because it can help boost net interest margins—the difference between the interest banks and financial institutions earn on loans and what they pay out to depositors. In recent months, several major banks raised their earnings guidance citing anticipated improvements in net interest margins. 

Citigroup Earnings

A greater portion of Citigroup’s (C) earnings are generated overseas compared to some of its peers, and some analysts think the company could be negatively impacted as a result—particularly by a growing call for protectionist policies in some countries where it operates. While some analysts are concerned about C’s international exposure, others seem to think this could be a positive for the company if global growth starts to accelerate.

C is expected to report $1.24 earnings-per-share, or EPS, on revenue of $17.81 billion, according to consensus third-party analysts. Revenue is expected to increase 1% and EPS is expected to increase 12%, as the company has focused on cutting costs. Last quarter, C’s operating expenses decreased 9% to $10.1 billion.

Short-term options traders have priced in a potential 2.14% share price move in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform. Calls have been active at the April 13 weekly 60 strike price while puts have seen activity at the April 13 weekly 56.5 and 57.5 strikes. The implied volatility sits at the 26th percentile.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time. 

Citi Earnings Chart

FIGURE 1: FLAT ON THE YEAR.

After hitting recent highs in early March, C gave up some of its gains and remains close to flat for the year. Chart source: thinkorswim® by TD Ameritrade.  Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

JPMorgan Chase Earnings

Dow component JPMorgan Chase (JPM) is expected to report a 14% increase in EPS to $1.51 on revenue of $24.57 billion, according to consensus third-party analysts. Coming in a little higher than analyst estimates, data from Estimize* points to JPM reporting $1.56 EPS. Last quarter, the company reported a 24% increase in profit as its trading units benefited from heavy activity following the U.S. elections. In addition to its trading business, JPM cited growth in deposits and loans, and higher credit card sales as contributors to its strong earnings.

JPM CEO Jamie Dimon is widely respected in the industry and his insights in shareholder letters and on conference calls are widely followed for potential insights into the global economic and political climate. In the past, Dimon has warned of potential negative impacts of Brexit and growing sentiment against globalism.

Heading into earnings, short-term options traders have priced in a potential 1.9% share price move in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform. Calls have been active at the April 13 weekly 90 and 91 strikes while puts have been active at the April 13 weekly 80.5 and 85 strikes. The implied volatility sits at the 38th percentile.

JPMorgan Earnings Company Profile

FIGURE 2: JPM COMPANY PROFILE.

This feature on the Fundamentals tab on the thinkorswim® platform allows TD Ameritrade clients to analyze potential revenue drivers of a stock. Trefis information and estimates used in Company Profile are provided by Insight Guru, a separate and unaffiliated firm. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Wells Fargo Earnings

Wells Fargo (WFC) remains in the news as the company continues dealing with its sales scandal that resulted from unauthorized accounts being opened in consumers’ names without their knowledge. The bank recently announced it would claw back $75 million in compensation from top executives. The bank saw a 43% decline in consumer checking account openings in February, possibly a sign that consumers have been slow to regain trust.In Q1 2017, WFC is expected to report $0.97 EPS on revenue of $22.13 billion, according to consensus third-party analysts.

Short-term options traders have priced in a potential 1.77% share price move in either direction around the earnings release, according to the Market Maker Move indicator™ on the thinkorswim® platform. Calls have been active at the April 13 weekly 54 and 56 strikes while puts have been active at the April 13 weekly 52.5 strike. The implied volatility sits at the 38th percentile.

Wells Fargo

FIGURE 3: A SMALLER RALLY.

WFC hasn’t rallied as much as some of its peers and the stock is down slightly year-to-date. Chart source: thinkorswim® by TD Ameritrade.  Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

The next round of financial sector earnings is a week away with Bank of America (BAC) and Goldman Sachs (GS) reporting on April 18, and Morgan Stanley (MS) is expected to report on April 19.

Good Trading,

JJ

@TDAJJKinahan