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Big Banks Set to Release Q2 Earnings: JPM, C, WFC & PNC

The second-quarter earnings season is knocking at the door with big names – JPMorgan Chase & Co., Wells Fargo & Company, The PNC Financial Services Group, Inc. and Citigroup Inc. – all reporting financial numbers tomorrow, before the opening bell.

Though the year begun on an optimistic note with Donald Trump’s policy goals and improving rate scenario, the same shadowed in the second quarter.

Trading activities remained sluggish for the major part of the quarter in the absence of any tangible development on the reforms proposed by the Trump administration, lesser geopolitical tensions and an unchanged monetary policy standpoint of the Fed. Though the market witnessed some volatility at the very end of the quarter induced by renewed reform talks and steps, it may not be sufficient for banks to report positive numbers in trading revenues.

Further, overall investment banking business in the U.S. was not impressive during the quarter, due to lack of equity issuance and M&As. Moreover, debt underwriting suffered. However, improvement in equity underwriting can act as a saviour.

In addition to higher interest rates, a moderate improvement in lending — particularly, in the areas of commercial and industrial, and real estate — might energize interest income for banks.

On the cost front, there is less chance of a significant rise in expenses, though banks might record marginally higher expense level due to digitization. At the same time, expense-saving initiatives keep on supporting the bottom-line performance. So, overall expenses are expected to remain stable in the quarter.

Per our latest Earnings Preview article, overall earnings for the major banks in second-quarter 2017 are projected to decline 6.0% year over year.

Nonetheless, there might be a surprise in store for major banking stocks this earnings season. Let’s take a look at the four major banks scheduled to announce their results tomorrow.

JPMorgan Chase & Co. JPM will kick off the second-quarter earnings season for the banking sector. With a Zacks Rank #3 (Hold) and Earnings ESP of 0.00%, we are unable to conclusively predict earnings beat in the to-be-reported quarter. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Loan growth might lift net interest income. Expectations of a higher rate environment and relaxation of regulatory restrictions might have encouraged refinancing activities during the quarter, helping JPMorgan generate some mortgage revenues. However, with the refinance boom nearing its end, no major support is expected from this segment. Moreover, sluggish trading activities and lack of investment banking activities are anticipated to be the headwinds. (Read more: Will JPMorgan's Q2 Earnings Dampen Stress Test Cheer?).

Notably, JPMorgan surpassed the Zacks Consensus Estimate in all the trailing four quarters, as shown in the chart below:

J P Morgan Chase & Co Price and EPS Surprise

 

J P Morgan Chase & Co Price and EPS Surprise | J P Morgan Chase & Co Quote

For another big bank, Citigroup Inc. C, we cannot conclusively predict earnings beat in the quarter as higher credit costs are likely to hurt its financials. However, the company is anticipated to witness improvement in consumer banking revenues, while pressure on margins is likely to somewhat ease. Nevertheless, slowdown in trading revenues is expected to act as a headwind. (Read more: Citigroup to Post Q2 Earnings: What's in the Cards?).

Further, this Zacks Rank #3 stock surpassed the Zacks Consensus Estimate in all the trailing four quarters, as reflected in the chart below:

Citigroup Inc. Price and EPS Surprise

 

Citigroup Inc. Price and EPS Surprise | Citigroup Inc. Quote

Likewise for Wells Fargo & Company WFC, we are unable to conclusively predict earnings beat in the to-be-reported quarter. Mounting expenses and continual auto loan portfolio runoff are expected to dent the results. However, the bank will likely benefit from easing margin, loan growth and seasonally higher mortgage banking income to some extent. (Read more: Wells Fargo Q2 Earnings: Disappointment in Store?).

This Zacks Rank #3 stock posted an average beat of 1.52% for the trailing four quarters, having beaten the Zacks Consensus Estimate in three of them, as demonstrated in the chart below:

Wells Fargo & Company Price and EPS Surprise

 

Wells Fargo & Company Price and EPS Surprise | Wells Fargo & Company Quote

The PNC Financial Services Group, Inc. PNC is also unlikely to beat the Zacks Consensus Estimate in the second quarter. Expected higher net interest income and loan growth are likely to support earnings. Moreover, an increase in fee income in mid-single digits remains a potential tailwind. However, expectation of non-interest expenses to escalate in low-single digits in the quarter is on the downside. (Read more: What to Expect from PNC Financial in Q2 Earnings?)

PNC Financial posted an average beat of 4.95% for the trailing four quarters, having beaten the Zacks Consensus Estimate in all of them. It currently carries a Zacks Rank #3.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Check later our full write-up on earnings releases of these stocks.

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J P Morgan Chase & Co (JPM): Free Stock Analysis Report
 
PNC Financial Services Group, Inc. (The) (PNC): Free Stock Analysis Report
 
Wells Fargo & Company (WFC): Free Stock Analysis Report
 
Citigroup Inc. (C): Free Stock Analysis Report
 
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