JPMorgan Chase Forecasts Years Of Robust Growth
If the banks are the new bellwether for stocks the Q1 results from JPMorgan Chase (NYSE: JPM) and its compatriots are indicating a very strong reporting season indeed. The catch is that, while good, the details are a bit one-sided and cast a shadow on the report if only for the near term. Longer-term, the JPMorgan results indicate a much stronger consumer than a year ago and an economy on the verge of accelerating growth.
"With all of the stimulus spending, potential infrastructure spending, continued Quantitative Easing, strong consumer and business balance sheets, and euphoria around the potential end of the pandemic, we believe that the economy has the potential to have extremely robust, multi-year growth," JPMorgan CEO Jamie Dimon said.
JPMorgan Blows Past Consensus On Investment Banking Strength
JPMorgan blew past the consensus for Q1 earnings by such a wide margin it's as if the analysts weren’t paying attention and they were. The consensus estimate is up 35% over the past six months and still missed by 650 basis points. The catch is the $32.3 billion in revenue beat by $1.99 billion primarily on strength in investment banking and equity markets offset by weakness in most consumer segments.
On the investment banking side of the business, consolidated results grew 29% from last year. The gains were made in banking (up 220%), equity markets (up 47%), and fixed income markets (up 15%) and all underpinned by robust demand. On the consumer end of the business, most consumer segments saw mild sequential declines with slightly larger high-single-digit to low-double-digit declines. Notably, while consumer spending increased by 14% the average loan fell -7% as consumers shy away from credit. Turning to deposits, the average deposit had a more substantial 32% increase which we take as a sign of increasing strength among consumers and businesses.
Moving down to the bottom line the results are more fantastic but once again there is a catch. The company released an unexpected $5.2 billion in credit reserves versus the consensus $1.5 billion adding a net $4.2 billion in positive credit-loss impact, or about 40%, to the bottom line. That said, the $3.31 in adjusted EPS beat by $0.28 or 8.5% while the $4.50 in GAAP earnings beat by $1.38 and put the company on track for dividend increases and share buybacks. And the company still has $26 billion in reserves to draw on.
JPMorgan Is On Track To Increase The Dividend
JPMorgan Chase paid its shareholders $6.7 billion in Q1 or about 65% of its earnings when adjusted for the $5.2 billion capital release and this rate should not slow. Based on the company’s balance sheet, cash flow, and free cash flow not only do we expect JPMorgan to keep paying but to increase both the distribution and the buybacks over the course of the next year. The only thing holding them back is the Fed and they’ve indicated they may give the OK as early as June. It is our view the next increase will be in the range of 15% and bring the yield on recent price action to 2.7%
The Technical Outlook: JPMorgan Falls, Correction May Come
The JPMorgan results are great and point to a nice dividend increase over the summer but lacked the punch to get share prices moving higher. The premarket action is down about 1.5% on the news and sitting on what may turn out to be a very strong support level. While tepid (from a certain point of view) the results are still strong and the outlook for long-term growth robust. In that light, a move to support should result in a bounce, the question is “where is support?”. If the EMA fails to hold this stock could correct down to the $140 or $130 levels over the next few weeks to three months. If it does we'll be ready for the bounce.
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