Earnings season kicks off this week and investors or going to be looking for clues and trends in first quarter earnings to help them navigate the months ahead. Many will be looking at the big banks for a clue which direction the markets might be headed.
Financials have led the way since the market bottom in 2009 and may traders look to them for an indication as to overall market direction. I am not sure if they offer any real clues as to what the market will do but the banks are an important sector and will be closely followed.
With that in mind it might be useful to take a look at the g four banks as we head into this earning season.
Wells Fargo (WFC) is among the first banks to report earnings this season, with its earnings release set for Friday, April 11. The bank has seen solid earnings growth the past five years but some analysts are concerned that the pace of growth may slow as the benefits of improving credit portfolios begins to wane. The consensus estimate of for the bank to earn 96 cents on revenues of $20.6 million for the first quarter of the year.
Portfolio Grader has the stock ranked as Buy but it is really more from intense buying pressure than great fundamentals as the fundamental grade is just a C. I am something of a skeptic about the bank stocks as I think much of their performance is from Fed actions rather than real business improvements.
If the analysts are correct about slowing growth this stock could see its ranking fall in the aftermath of the report.
JPMorgan (JPM) is also reporting earnings Friday April 11, and analysts are expecting the bank to earn $1.14 per share on $24.53 billion of revenue. JPM has also seen five year earnings growth the past five years, with much of the result of credit improvements in their loan portfolios.
JPM passed the stress tests conducted by the Fed and had their capital plan approved. As a result the bank will be raising the dividend by 2 cents a share and has authorized a $6.5 billion buyback. While this is good news the truth is that the fundamentals are just okay for this bank.
The stock has been ranked a C or D by Portfolio Grader since last September and I do not see anything in the first quarter that will cause the stock to be upgraded from the current Hold ranking.
Bank of America (BAC) will report earnings on Wednesday, April 16th and analysts are expecting the bank to earn 5 cents a share with revenues coming in at $22.38 billion. BAC has posted three consecutive earning surprises in a row so the analyst community has consistently underestimated results for this bank.
The bank received a surprise non-objection from the Fed for their capital plan and has raised its dividend from 1 cent a share to 5 cents a share each quarter and has instituted a $4 billion share buyback.
Bank of America has the best fundamental rankings among the Big Four and the stock was upgraded to a B back in January and is actually a buy coming into earnings season according to Portfolio Grader.
Nothing has gone right for Citigroup (C) so far this year and I do not expect that to change when they report earnings on Monday, April 14th. The Fed rejected their capital plan so the anticipated dividend increase and larger share buyback will not happen anytime soon.
The Fed cited problems with its capital planning process as the main reason for the rejection and this apparently not the first time C has been warned about problems in this area.
Analysts are looking for earnings of $1.16 a share on revenues of $19.38 billion. The bank has posted two consecutive negative earnings surprise and given all that has gone wrong for the company I am not going to be very surprised if they post a third.
The stock is ranked D by Portfolio Grader and remains a sell at the current price.