Earnings Beat: Nomura Divided on Banking Giants JPMorgan Chase & Co. (JPM) and Citigroup Inc (C)


Earnings season is officially set back into motion, and Nomura analyst Steven Chubak is out today divvying insights on two banking giants: JPMorgan Chase & Co. (NYSE:JPM) and Citigroup Inc (NYSE:C). Though both banks outclassed expectations, the analyst surveys J.P. Morgan from the sidelines, but conversely assesses Citigroup from a bullish stance.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, five-star analyst Steven Chubak is ranked #207 out of 4,556 analysts. Chubak has a 71% success rate and yields 19.8% in his annual returns. When recommending JPM, Chubak earns 0.7% in average profits on the stock. When suggesting C, Chubak realizes 17.8%.

J.P. Morgan Outperforms- So Why Might That Not Be Enough?

While Chubak sees J.P. Morgan’s stronger revenues this quarter that led to the “modest” beat as an offset for credit challenges, he nonetheless advises investors to brace for a “muted reaction.” In reaction, the analyst reiterates a Neutral rating on shares of JPM with an $83 price target, which represents a 2% downside from where the stock is currently trading.

For the first quarter of 2017, JPM posted EPS of $1.65, outperforming both the analyst’s forecast of $1.48 as well as consensus of $1.51, with core EPS circling $1.55 minus a $373 million tax benefit (around $0.10). The beat rode on back of surging revenues as well as solid performance from the banking giant’s Investment Banking and trading segment, bringing an added $0.04, as well as some bolstered efficiency by $0.01. These strengths rose even in face of an elevated headline expense number. Yet, the analyst underscores an offset from steeper credit costs regarding Card NCOs paired with a Student Lending write-down, resulting in a loss of $0.03. Two other deltas Chubak highlights include a subdued adjusted tax rate that brought the giant an added $0.03 coupled with a reduced restricted cost unit (RSU) payout, lifting another $0.02.

Chubak asserts, “Despite the modest core beat, we believe elevated credit costs and muted loan growth (flat QoQ) could dampen share price reaction, as the stock has held in slightly better than bank peers YTD (-1% vs. BKX -3%). While the updated NII guidance in the outlook slide is slightly better than the guidance from Investor Day, and expense / credit guidance (excluding the Student Loan writedown) was reaffirmed, this may not be enough to support positive EPS revisions.”

TipRanks analytics demonstrate JPM as a Buy. Out of 11 analysts polled by TipRanks in the last 3 months, 6 are bullish on J.P. Morgan stock, 4 remain sidelined, and 1 is bearish on the stock. With a return potential of 8%, the stock’s consensus target price stands at $92.22.



Citigroup’s Double-Edged Sword: ICG Strength vs. NII Weakness

Citgroup’s quarterly Net Interest Income (NII) may have proved a letdown to Chubak and shareholders in the banking giant’s first quarter of the year, but thanks to power in its Institutional Clients Group (ICG) segment and strides in efficiency, the analyst continues to back the stock.

Therefore, the analyst reiterates a Buy rating on C with a price target of $69, which represents an 18% increase from where the shares last closed.

For the first quarter, Citi posted EPS of $1.35, which soared “well ahead” of the analyst’s projection as well as consensus of $1.23. Notwithstanding an approximate $0.08 benefit in Corp/Other, clean EPS arrived near $1.27. Chubak attributes Citi’s beat to $0.03 strength in ICG, adding that it “more than offset softness in Consumer, which saw a pullback of $0.02 for the quarter. Additionally, the print revealed improved efficiency by $0.05 in spite of dollar costs coupled with a dip in credit costs of $0.03. However, these positives also were counterbalanced by softer “clean” results in Corp/Other, which saw a $0.02 reduction, as well as a bit of an elevated tax rate, shaving off another $0.03.

Ultimately, “Citi results reflected good progress across multiple fronts (fee income growth, efficiency progress, credit resiliency, and strong capital generation). However, NII declines (-3%) were greater than anticipated, which could disappoint investors. On balance, we expect to see modest share O/P off the back of these results, though potential for upward revisions will be contingent on NII guidance / outlook,” contends Chubak.

TipRanks analytics show C as a Strong Buy. Based on 11 analysts polled by TipRansk in the last 3 months, 10 rate a Buy on Citigroup stock and 1 maintains a Hold. The 12-month average price target stands at $67.00, marking a 14% upside from where the stock is currently trading.

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