JP Morgan Chase Earnings Preview: Q408

JP Morgan Chase is scheduled to report fourth quarter 2008 results before the market opens on Thursday, January 15. Based on our analysis, we are expecting JPM to report disappointing results that fail to meet Wall Street’s expectations.

 

Analyst Expectations

We are forecasting revenues of $19.0 billion and EPS of ($.05). This would represent a 9% increase in revenues from last year’s $17.38 billion in the same period. The current analyst consensus calls for revenues of $19.16 billion and $.02 EPS.

 

We expect fourth quarter performance will be particularly tough. Increasing economic pressures caused spreads to widen as the credit markets almost completely froze up. In addition, lack of activity in the investment banking sector and additional write downs on the loan portfolios could highlight the financials troubles of 2008.

 

Fortunately, JP Morgan remains one of the solid foundation stones of our financial industry. With a visionary management team and a strong balance sheet, they appear to have taken the lemons of 2008 and made lemonade. The acquisitions of Bear Stearns and Washington Mutual at fire sale prices should provide significant lift over the long term and could allow JP Morgan to position themselves well ahead of their competitors.

 

Share Performance

JP Morgan’s shares have already fallen 20% this year. In 2008, their shares dropped 28% while slightly outperforming the 34% drop in the Dow Jones index.

 

Valuation

Shares are now trading at 11x consensus 2009 EPS estimates. While this represents a premium to their peer group, we believe JPM’s leadership positions justifies this valuation.

 

Recommendation: Buy with a $30 price target.

 

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