JPMorgan Chase & Co. (JPM) is scheduled to report its third-quarter results on October 13. Wall Street expects the bank to post year-over-year improvement in revenue and earnings for the quarter. With the interest rates at their highest level in 22 years, investors would be interested in JMP’s management commentary to understand how it has impacted the bank’s financials.

While Wall Street expects a year-over-year improvement in JPM’s financials, I have discussed why waiting for an opportune entry point in the stock could be wise.

JPM is the largest U.S. bank by assets. Its appeal to investors can be gauged from its 71% institutional ownership. Hence, JPM’s earnings are closely tracked by investors and analysts. For the third quarter, JPM’s EPS is expected to increase 27.2% year-over-year to $3.97. Its revenue is also expected to rise 20.4% year-over-year to $39.38 billion.

The company has a solid earnings history, having beaten the consensus estimate in each of the trailing four quarters. Bank of America analyst Ebrahim Poonawala believes that JPM is “best positioned” to handle higher rates and could surprise markets with stronger-than-expected results. He raised his earnings estimate for JPM.

JPM’s acquisition of the First Republic Bank earlier this year and the highest interest rates in 22 years are expected to have boosted its net interest income, resulting in higher earnings. The acquisition of First Republic not only led to substantial gains from a balance sheet perspective but also brought in its high net worth (HNW) clients.

After its second-quarter earnings, JPM CEO Jamie Dimon said, “The U.S. economy continues to grow and both the job market and consumer spending, and their ability to spend, remain healthy.”

“But geopolitical tension, high inflation, waning consumer confidence, the uncertainty about how high rates have to go and the never-before-seen quantitative tightening and their effects on global liquidity, combined with the war in Ukraine and its harmful effect on global energy and food prices are very likely to have negative consequences on the global economy sometime down the road,” he added.

Despite signs of activity, deal-making continues to disappoint. Moreover, slowing loan growth, rising funding costs, and a slowdown in deposit growth are expected to have affected its margins. Additionally, its mortgage banking income is expected to show slower growth during the third quarter as mortgage rates reached their highest level in nearly 23 years.

The stock has gained 13.9% over the past six months and 38.7% over the past year to close the last trading session at $145.65.

Here’s what could impact JPM’s performance in the upcoming months:

Robust Financials

JPM’s total net revenue for the second quarter ended June 30, 2023, increased 34.5% year-over-year to $41.31 billion. Its net income rose 67.3% year-over-year to $14.47 billion. In addition, its EPS came in at $4.75, representing an increase of 72.1% year-over-year. Its return on common equity (ROE) was 20%, compared to 13% in the year-ago period. Also, its CET1 ratio was 13.8%, compared to 12.2% in the prior-year quarter.

Mixed Analyst Estimates

Analysts expect JPM’s EPS and revenue for fiscal 2023 to increase 32.8% and 22.6% year-over-year to $16.06 and $157.72 billion, respectively. On the other hand, its EPS and revenue for fiscal 2024 are expected to decline 7.7% and 1.7% year-over-year to $14.82 and $155.09 billion, respectively.

High Profitability

In terms of the trailing-12-month net income margin, JPM’s 35.38% is 37.2% higher than the 25.78% industry average. Likewise, its 17.11% trailing-12-month Return on Common Equity is 50.5% higher than the industry average of 11.37%. Furthermore, the stock’s 1.24% trailing-12-month Return on Total Assets is 7.8% higher than the industry average of 1.15%.

Stretched Valuation

In terms of forward non-GAAP P/E, JPM’s 9.07x is 1.8% higher than the 8.91x industry average. Likewise, its 2.68x forward Price/Sales is 21.2% higher than the 2.21x industry average. Its 1.42x forward Price/Book is 44.1% higher than the 0.99x industry average.

POWR Ratings Reflect Uncertainty

JPM has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. JPM has a D grade for Value, consistent with its stretched valuation. Its 1.10 beta justifies its C grade for Stability.

JPM is ranked #3 out of 10 stocks in the Money Center Banks industry. Click here to access JPM’s Growth, Momentum, Sentiment, and Quality ratings.

Bottom Line

JPM is expected to post higher revenue and earnings in the third quarter, thanks to the higher interest rates and the acquisition of First Republic. However, the uncertain macroeconomic conditions are expected to put pressure on the bank’s financials.

Challenges like higher lending costs, deposit outflows, credit rating downgrades, the possibility of a recession, higher borrowing costs, surging U.S. Treasury yields, worsening credit quality, etc., cloud influence the banking sector’s outlook.

Given the uncertainty around the banking sector and JPM’s mixed analyst estimates and stretched valuation, it could be wise to wait for a better entry point in the stock.

How Does JPMorgan Chase & Co. (JPM) Stack Up Against Its Peers?

JPM has an overall POWR Rating of C, equating to a Neutral rating. You may check out these B-rated stocks within the Foreign Banks industry: KB Financial Group Inc. (KB), Banco Macro S.A. (BMA), and Akbank T.A.S. (AKBTY). For exploring more Buy-rated Foreign Banks stocks, click here.

What To Do Next?

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JPM shares were trading at $145.55 per share on Wednesday afternoon, down $0.10 (-0.07%). Year-to-date, JPM has gained 11.77%, versus a 14.82% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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