Welcome to the Stock of the Day.
In morning trading JPMorgan Chase (JPM) was dominating headlines after it reported first-quarter operating results. JPM shares are down 3% on the news, but could there be a buying opportunity underneath the surface? Or is it really time to unload JPM? Full details here.
In just the past few years, JPMorgan and Chase has become the largest bank in the United States in terms of assets; it currently boasts a $2.4 trillion portfolio. JPMorgan Chase as we know it today was founded in 2000 when Chase Manhattan Bank and J.P. Morgan & Co. merged.
This multinational banking corporation has its hands in investment banking, asset management, private wealth management as well as treasury and securities services. Headquartered in Midtown, Manhattan, this company employs over 260,000 worldwide.
For the first quarter JPMorgan Chase reported net income of $4.9 billion on $23.8 billion in net sales. Compared with the year ago quarter this represents a 20% drop in earnings and a 8% reduction in sales. Adjusted earnings were $1.28 per share, which missed the $1.39 consensus EPS estimate by 8%.
One problem is that JPMorgan’s mortgage business is falling on rising mortgage rates, which has depressed demand for refinancing. Q1 2014 revenue from the mortgage unit plunged $1.1 billion compared with Q1 2013—a 41% drop.
The company’s fixed income trading business also saw a 21% year-on-year decline in revenues. Because the bank doesn’t see these trends reversing anytime soon it’s likely that JPMorgan will continue to have issues in coming earnings announcements.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. JPM stock has fallen considerably in my screening tool since the summer. As of last May, JPM stock was an A-rated Strong Buy. Then the stock fell to a B-rating over the summer months, and then to a C-rating in the fall. It even spent February at a D-rated sell. That’s mostly because buying pressure has recently fallen to the point where JPM receives a C for its Quantitative Grade.
Meanwhile, the company has some kinks that need fixing on its balance sheet. Of the eight metrics I graded it on, the company outright fails on three: Sales growth, operating margin growth and earnings momentum. JPMorgan earns Cs on three more: Earnings growth, earnings surprises and analyst earnings revisions.
So despite strong cash flow and return on equity, the company receives a C for its Fundamental Grade.
Bottom Line: As of this posting I consider JPM stock a C-rated Hold. With the latest earnings miss and negative reaction to the data, I could very well downgrade the stock over the weekend to a sell.
So I recommend all current shareholders run JPM through Portfolio Grader first thing on Monday.