Banks Provide Mixed Start to Q4 Earnings Season

JPMorgan JPM And Citigroup C Stocks lost ground as banks’ fourth-quarter earnings season kicked off. JPMorgan beat EPS estimates, but missed revenue, which was up +1.7% from the same period last year. Citi also failed to beat expectations, with fourth-quarter revenue for 2021 down 0.9% from the same period a year earlier.

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The tone and substance of management’s comments about the current and future periods were cautious, with JPMorgan, in particular, warning of “…a few years of sub-target returns.” A notable disappointment in the market was JPMorgan’s cost forecast, which is expected to reach $77 billion in 2022 from $71 billion in 2021.

The capital markets business remained very cool, although activity levels in the fourth quarter were below record levels in previous quarters. Trading returns are down -11% in JPMorgan and -17% in Citigroup, mostly due to weak fixed income trading.

On the positive side, the outlook for loan demand has steadily improved, as consumers begin to rely more on credit to sustain spending. The loan portfolio increased 6% in JPMorgan and +3% in Wells Fargo, with Citigroup’s modest increase above the previous year’s level.

This is a good preparation for the regional banks which will be announcing their December quarter results in the coming days. With interest rate prospects improving in light of expectations of multiple Fed rate hikes in 2022, this core banking business promises to become much more profitable than it has been in recent years.

In terms of the sector’s fourth-quarter earnings season scorecard, we now have results from 17.6% of the sector’s market capitalization in the S&P 500. The total earnings of these financial sector firms are up +3.6% from the same period last year on +1.8% higher revenue, With all companies exceeding their EPS estimates (100% EPS) and 60% exceeding revenue estimates.

This is a weaker view than we’ve seen from this group of banks in other recent periods, as you can see in the comparison charts below that show how the fourth-quarter EPS and EPS percentages stack up with other recent periods.

Zacks Investment Research

Image source: Zacks Investment Research

Next week will bring results from Bank of America, Goldman Sachs, Morgan Stanley and all regional banks. Trends in loan portfolios and cost forecasts are likely to determine how the market will respond to those outcomes.

gross profit picture

Away from the finance sector, fourth-quarter S&P 500 earnings are expected to rise +20.9% from the same period last year with revenue up 11.7%. This will be followed by earnings growth of +41.4% compared to revenue growth of +17.3% in Q3 2021.

the Table Below takes a comprehensive look at the quarterly outlook for the S&P 500, with earnings and revenue growth forecasts for the next three quarters contrasted with actual values ​​for the previous four periods; The outlook for 2021 Q4 is highlighted.

Zacks Investment ResearchImage source: Zacks Investment Research

As you can see in the chart above, the pace of growth is expected to slow significantly over the coming quarters, but it remains positive.

the Table Below provides a comprehensive view of the image on a yearly basis.

Zacks Investment ResearchImage source: Zacks Investment Research

The start of the fourth quarter earnings season

Friday’s results from JPMorgan, Citi and others (unofficially) kicked off the fourth-quarter earnings season. But in our view, the reporting cycle was in progress before these banks’ results came in. Including the three major banks that reported on Friday morning, we now have 26 S&P 500 members.

We have more than 90 companies on deck reporting results this week, including 37 members of the S&P 500. The financial sector dominates this week’s reporting schedule, with Netflix and a few airlines and rail operators as other major reports this week.

For the 26 index members already reporting, fourth-quarter total earnings or total net income were up +19.2% from the same period last year on a +11.7% revenue increase, with 88.5% of companies exceeding EPS estimates and 84.6% exceeding estimates. Revenues. .

This is a very small sample from which to draw any firm conclusions. However, the comparison charts below place the earnings and revenue growth rates of these 26 companies in historical context.

Zacks Investment ResearchImage source: Zacks Investment Research

The comparison charts below place fourth-quarter earnings per share and earnings-output ratios in historical context.

Zacks Investment ResearchImage source: Zacks Investment Research

The summary table below shows the fourth-quarter outlook in the context of what we saw in the prior period.

Zacks Investment ResearchImage source: Zacks Investment Research

For an in-depth look at the overall earnings picture and outlook for the upcoming quarters, please see our Weekly Earnings Trends Report >>>> Fourth Quarter Earning Season Begins

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