Top analyst Steven Chubak at Nomura weighs in on Bank of America Corp (NYSE:BAC) and JPMorgan Chase & Co. (NYSE:JPM) after the two banking giants delivered fourth-quarter prints. Though the analyst criticizes BAC for an underwhelming quarterly print, he likes the outlook for the first quarter of 2017. When evaluating JPM’s fourth-quarter earnings, the analyst praises the strong beat from the sidelines.
Steven Chubak has a very good TipRanks score with an 82% success rate and a high standing of #71 out of 4,342 analysts. Chubak garners 26.5% in his annual returns. When recommending BAC, Chubak earns 36.5% in average profits on the stock. When suggesting JPM, Chubak gains 0.7%.
Let’s take a closer look:
Bank of America: Pressure Facing Shares- Will Outlook and Expense Control Be Enough of an Offset?
Though Bank of America showcased an earnings beat for the fourth quarter, Chubak highlights a core miss on back of weaker trading that leaves him less confident, even as he reiterates a Buy rating on shares of BAC with a $25 price target, which represents a 7% increase from where the stock is currently trading.
For the fourth quarter, the banking giant reported EPS of $0.40, which outperformed both consensus of $0.38 as well as the analyst’s projection of $0.36.
However, Chubak explains, “Despite the headline beat, adjusting for lower tax rate (-0.04), better credit (-$0.02), and DVA loss (+0.01), core EPS was closer to $0.35. The core miss was primarily driven by weaker fee income as trading revenues and wealth management fees disappointed.
Nonetheless, the analyst still commends the giant in terms of efficiency and cost, beliving, “Despite the revenue miss, efficiency was in line, reflecting good cost control (lower $ expense on lower revenue).”
Detailing other key takeaways, the analyst underscores, “Solid core loan growth (+2% QoQ); weaker capital ratios (as expected) due to curve steepening / AOCI losses (-10bps QoQ); and + NII guidance for 1Q17 (+$600mn, vs. +$400mn for cons.).”
Ultimately, “We believe strong postelection share performance at BAC and peers raised the bar ahead of results season, and while we do not anticipate negative revisions for 2017 given + NII guidance, constructive credit outlook, and good expense control, this may not be enough to offset the disappointing 4Q print, and we expect shares to come under pressure,” Chubak contends.
TipRanks analytics exhibit BAC as a Buy. Out of 20 analysts polled by TipRanks in the last 3 months, 13 are bullish on Bank of America stock and 7 remain sidelined. With a loss potential of nearly 2%, the stock’s consensus target price stands at $22.81.
JPMorgan: Strength in Earnings, But Outlook is Achilles’ Heel
JPMorgan’s fourth-quarter print revealed robust earnings, but weak guidance for the first quarter of 2017 keeps Chubak sidelined on the giant moving forward. As such, the analyst reiterates a Neutral rating on JPM with a price target of $80, which aligns with current levels.
For the fourth quarter, the giant reached $1.71 in EPS, “well above” the analyst’s expectation of $1.37 as well as consensus of $1.42.
Moreover, when it comes to corporate and investment bank (CIB) revenues, the bank outclassed the analyst’s forecast of $7.6 billion with $8.5 billion, thanks to strength in Fixed Income, Currencies, and Commodities (FICC) trading and the Investment Banking Division (IBD), especially in debt capital markets (DCM).
“Excluding tax benefit and provision beat, core EPS was ~$1.45, with the beat driven primarily by higher revenues (+$0.03) and better efficiency (+$0.05), as strength in CIB more than offset weaker results at the Consumer Bank. 1Q17 outlook disappointed somewhat given more measured guidance for NII (up modestly QoQ), Asset Mgmt. fees (<$3bn), and CCB Expense (+$150mn QoQ),” notes Chubak.
Overall, the bottom line is that the giant’s “strong” fourth-quarter print is “dampened by measured s/t outlook,” and the analyst surmises, “Given the sheer magnitude of the beat, we would expect JPM shares to outperform, though more measured outlook commentary for 1Q17 could dampen the degree of share outperformance / limit upward revisions.”
TipRanks analytics show JPM as a Buy. Based on 13 analysts polled by TipRanks in the last 3 months, 7 rate a Buy on JPM stock, 5 maintain a Hold, and 1 issues a Sell. The 12-month average price target stands at $87.00.