The market is gearing up for another action packed earnings season. The markets performed very strongly during the previous earnings cycle, but a big reason for the early-year gains was the big market correction that rocked equities in the final month of 2018.
Last quarter was a good one, with around 70% of companies posting better than expected profits for their recent quarter. While the percentage of beats was high, we did see a lot of companies post slower growth, and that will be a concern for Wall Street as we head into the new earnings season later this week.
Big banks will get the earnings season under way, and it will be an important quarter for financials. The big financial stocks have struggled to keep pace with the overall market rally in 2019. The market previously thought the Federal Reserve would boost interest rates at least twice and possibly three times during the current year, but the Fed has made it clear that it is unlikely to lift rates through at least the end of 2019. Banks are very interest rate sensitive, and this has kept financial stocks in a sideways trend for the last several months as investors await the next set of quarterly numbers.
Also weighing on the sector is the ongoing trade negotiations between the U.S. and some of its biggest trading partners. The trade war between the U.S. and China gets most of the market’s attention, but the U.S. is also at odds with European countries. There is a fear that the current trade war will lead to a global recession, and that fear will likely keep bank stocks muted until more progress is made through negotiations.
There are several big banks getting set to report, and here are four of the biggest.
JP Morgan Chase (JPM)
JP Morgan Chase (JPM) will officially kick off the earnings season when it reports first-quarter numbers before the market opens this Friday. The bank is expected to report earnings of $2.32 per share and revenue of $28.07 billion. After rebounding in late December and early January, JPM shares have been stuck in a sideways trend for the last few months. Last quarter the bank missed estimates on both the top and bottom line, which has prevented the stock from taking part in the strong market rally so far this year. The Fed’s decision to keep interest rates unchanged is going to weigh on the stock unless the company is able to show Wall Street a strong quarter for both profit and sales. Traders believe JP Morgan will post better than expected numbers for the quarter, with a whisper number of $2.39. With the built-in expectation for a positive earnings surprise, the company needs to do better than in-line earnings, and the upside is limited unless the actual earnings beat is close to the whisper number. The stock will also be vulnerable to the quarterly report from competitor Wells Fargo (WFC) which will be released at the same time. Analysts have an average price target of $119.82 on the stock.
Wells Fargo (WFC)
Along with JP Morgan, Wells Fargo (WFC) will report first-quarter numbers before the market open this Friday. The consensus calls for earnings of $1.08 and sales of $20.87 billion for the quarter. Last quarter the company reported mixed results, with an earnings beat and revenue slightly weaker than expected. The company will need to post positive surprises on both the top and bottom line for the stock to break out of its current sideways pattern. The stock rallied at the tail end of 2018 and the first part of January but has been range bound the last three months following the mixed Q4 report. The street expects to see an earnings beat with a whisper number of $1.12 for the quarter. The stock is trading at just 8.5 times future earnings, but with the Federal Reserve not expected to boost rates during the year the stock will likely struggle to reach a higher valuation unless the company is able to show consistent positive earnings surprises to reassure Wall Street it can navigate a stagnant interest rate environment. Analysts have an average price target of $58.23.
The big bank reporting continues into next week with Citigroup (C) scheduled to report its first-quarter results before the open Monday morning. Ahead of the report analysts forecast earnings of $1.79 and revenue of $18.71 for the company’s most recent quarter. Like many of the big banks, last quarter saw Citigroup post better than expected earnings while revenue fell slightly short of estimates .The mixed report put the stock into a sideways trend which has tracked the overall financial sector the last three months. For the company’s most recent quarter, the street expects to see the bank post a positive earnings surprise with a whisper number of $1.84. C is trading at just 7.6 times future earnings, which are expected to grow 16.8% per annum over the next five years. Citigroup continues to show strong growth, but the market will need to see a very strong set of quarterly numbers to push shares higher and set aside concerns over the Federal Reserve not lifting rates in the current year, and fears over a possible global recession having a negative impact on the overall sector. Analysts have an average price target of $80.96 on the stock.
Goldman Sachs (GS)
Goldman Sachs (GS) will also report ahead of the market open on Monday, with the consensus calling for earnings of $5.06 and revenue of $8.97 billion. Unlike the other stocks we have looked at today, Goldman Sachs was able to post positive earnings and revenue surprises last quarter. The stock gapped higher following the strong quarterly report, but has been victim to the same sideways trend that the majority of the financial sector has traded in over the last three months. Another solid report should give the stock a much needed boost, but any sign of weakness will drive shares lower with investors showing a lot of caution on the sector with interest rates no longer on the rise. Ongoing trade disputes between the U.S. and China Europe are also creating fear of a possible global recession that will likely keep a ceiling on the sector until more progress is made in trade negotiations between the major economies. GS trades at slightly less than 8 times earnings, so there is upside potential, but the market will need to see a lot of strength not only in Goldman’s report, but all of the major financials reporting around the same time. Analysts have an average price target of $239.40 on the stock.