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Earnings Preview: Bank Stocks Will Steal the Show

Last Updated September 23, 2020 1:07 PM
Laura Hoy
Last Updated September 23, 2020 1:07 PM

Next week kicks off earnings season for the financial sector as bank stocks start to report.

The banking industry is seen as a bright spot this earnings season, with analysts predicting that it will be one of four sectors to eek out earnings growth. An S&P Global Market Intelligence poll  showed that analysts are expecting earnings growth of 1.73% from the financial sector, the second highest expected EPS growth rate. With that said, worse-than-expected results next week could put a damper on the market as a whole because the market could take that as a sign that Q3 will undercut analysts’ predictions as a whole. 

J.P. Morgan Chase (NYSE:JPM)

JPM stock, Bank Stocks, earnings
JP Morgan stock. | Chart: Yahoo Finance

JPM stock will kick things off for the banking industry with earnings due out before the bell on Oct 15. So far this year, America’s largest bank by market value has turned-in solid EPS growth and most are expecting  this quarter to yield EPS of $2.45; a 4.7% increase from the year-ago quarter. Revenue is seen coming in at $28.51 billion.

The Fed’s interest rate decisions  and how they’ll impact the bank will be the key takeaway from the earnings call as many are expecting to see further easing in the months ahead. Investors will also be keen to find out more about JPM’s expansion plans— the bank is adding 400 new branches  across the U.S. and expanding its digital banking offerings. 

Citigroup (NYSE:C)

C stock, Bank Stocks, earnings
Citigroup stock. | Chart: Yahoo Finance

C stock is also due to release its Q3 results on Oct 15 and the bank is seen delivering another impressive performance . Analysts are expecting Citigroup to report EPS of $1.95 on revenue of $18.54 billion. Last quarter was an impressive one for C stock as its investments in Tradeweb started to pay off . 

Again the Fed’s interest rate cuts and their impact on margins will be a key focus, but investors will also be looking for assurance that the bank will continue its buyback program .

Wells Fargo (NYSE:WFC)

WFC stock, Bank Stocks, earnings
Wells Fargo stock. | Chart: Yahoo Finance

WFC stock will join Citigroup and JP Morgan with an Oct 15 release date. The bank is expected to report  EPS of $1.14 on revenue of $21.12 billion. Unlike its peers though, WFC is struggling against more than just macroeconomic headwinds. The bank’s fake account scandal has led investors to dump the stock, but with a new CEO due to join the bank at the end of October , things could be turning around.

Since the scandal, WFC has been working to regain customers’ trust. Growth in the firm’s loans outstanding will be under scrutiny as investors look for proof that its strategy is working. Investors will also be looking to see further cost reductions, another pillar of the bank’s strategy  going forward. 

Johnson & Johnson (NYSE:JNJ)

JNJ stock, Earnings
Johnson & Johnson stock. | Chart: Yahoo Finance

Some heavy hitters that aren’t bank stocks are also reporting next week as well. JNJ stock is also set to reveal its Q3 results on Oct 15— the consumer goods firm is seen posting  EPS of $2.00 on revenue of $20.1 billion. If the firm meets expectations that would be a 2.4% decline from the previous year’s EPS and a 1.5% revenue decline. 

JNJ has been caught up in several legal issues  recently, which has hurt the firm’s finances and impacted consumer confidence. The firm’s legal tie-ups are likely to cast a shadow over its finances for some time, so the market will be looking for management’s comments regarding progress on the litigation front. Investors will also be looking for growth in JNJ’s pharmaceutical arm, a part of the business that Credit Suisse’s Mike Miksic says has potential . 

Plus, its worth noting that lackluster expectations for JNJ’s Q3 results means there could be an upside surprise which would likely drive Johnson & Johnson’s stock higher. 

United Airlines (NYSE:UAL)

UAL stock, Earnings
United Airlines. | Chart: Yahoo Finance

Also on Oct 15, UAL stock is due to report. Analysts are expecting to see  EPS of $3.95 on revenue of $11.41 billion. Both figures would represent year-over-year increases for the U.S. carrier. Investors will be focusing on the firm’s profits as worries about rising unit costs has weighed on the airline sector overall. 

The market will also be keen to hear management’s comments regarding canceled Boeing’s (NYSE:BA) 737 Max issues and the upcoming tariff on Airbus planes. UAL has 45 unfulfilled Airbus orders , which could become 10% more expensive once the new tariff kicks in.

Bank of America (NYSE:BAC)

BAC stock, Earnings, Bank Stocks
Bank of America stock. | Chart: Yahoo Finance

On Oct 17, BAC is due to release its quarterly results in what will be another litmus test for this earnings season. BAC stock has been beating analyst’s estimates over the past year, which has helped propel the stock more than 13% higher in 2019. For Q3, the firm is expected to report  EPS of $0.50 on revenue of $22.82 billion. 

Like the rest of its peers, BAC’s profit margins will be the star of the show  as investors look for clues on how the Fed’s easing has impacted the bank. Going forward, investors are also becoming increasingly worried about an economic downturn , so the quality of BAC’s loans will also be an important factor to watch. 

International Business Machines (NYSE:IBM)

Earnings, IBM Stock
IBM stock. | Chart: Yahoo Finance

On Oct 16 tech giant IBM is set to release its quarterly results as well. The firm is expected to report  EPS of $2.66 on revenue of $18.23 billion. The firm has been on a multi-year turnaround plan that has kept the share price from making any meaningful moves toward a recovery.

However, this could be the quarter that Big Blue turns things around. The firm has officially owned Red Hat  for an entire quarter, so the benefits of that acquisition  should start to become apparent. This quarter could make or break IBM as it will either justify the high price IBM paid for Red Hat, or add more fuel to bears’ argument that it overpaid. 

Morgan Stanley (NYSE:MS)

Bank stocks, MS Stock, earnings
Morgan Stanley stock. | Chart: Yahoo Finance

To round out the week for bank stocks, MS stock is due to report Q3 results on Oct 17. The firm is expected to report EPS of $1.13 on revenue of $9.7 billion.

This quarter will be an important one for MS stock as previous quarters have shown that its equity business is struggling . Morgan Stanley has been working to grow the other arms of its business  in order to reduce reliance on trading revenue, so investors will be looking to see its wealth management and commercial banking arms growing  in terms of percentage of overall revenue. 

So far MS has been one of the worst performers in the financial sector, but with expectations low heading into earnings there’s a chance of an upside surprise.