Since Donald Trump was elected president, the markets have enjoyed notable strength, with many investors expecting “business friendly” policies. And the financial sector is no exception.
In fact, it’s been the best-performing sector since the election, gaining more than 20% in the past six months. That’s almost double the second-best performers (industrials and technology).
Next week, three of the biggest names in the financials sector will announce their earnings. Will some solid numbers re-solidify the bullish thesis of the past three months and have investors snatching up more shares?
Let’s take a look.
Earnings Reports to Watch: JPMorgan (JPM)
Shares of JPMorgan Chase & Co. (NYSE:JPM) have gained over 50% over the past 12 months, despite notching no gains in the months that make up 2017. JPM will announce first-quarter earnings on Thursday, April 13, though, and an earnings beat could get shares moving higher again.
CEO Jamie Dimon just announced his annual letter to shareholders and reminded investors that JP Morgan delivered record earnings again last year. “We have delivered record results in six out of the last seven years,” he said, “and we hope to continue to deliver in the future.”
While top-line growth expected out of JPM is nothing to write home about, this is a financial company. This is a company that knows what to do with that money — a company that eat, sleeps and breathes profits. JPM has an operating margin of nearly 40%, is expected to book nearly 13% earnings growth for Q1, and has a history of consistent earnings beats.
One extra thing to look for: In his letter to shareholders, Dimon added a Public Policy section that had some folks scratching their heads (and suggesting he stay out of politics). But all it really was? A push for less regulation and less corporate taxes. I don’t believe such commentary is relevant to stock price, but it will be interesting to watch his messaging evolve.
Earnings Reports to Watch: Wells Fargo (WFC)
Wells Fargo & Co (NYSE:WFC) has been similarly sideways year-to-date and a bit quieter over the past 12 months. While it doesn’t leap over Wall Street’s expectations as easily or consistently as JPM, these two companies have more similarities than differences when it comes to fundamentals.
Both sport a forward price-earnings ratio just north of 12, which is a few percentage points higher than the long-term growth on tap. But despite the fact that Wells Fargo’s earnings for the past three months are expected to contract year-over-year, it’s five-year forward-looking estimate is close to 8%, besting Dimon & Co.
Wells Fargo and JPMorgan both have a dividend north of 2.3% despite their strong gains. (WFC has 17% gains in the books over the past 12 months.)
Because of the similarities and shared earnings date, don’t be surprised if investor react to the sector as a whole. I would be surprised if one of these companies ends up dramatically higher and another dramatically lower.
Earnings Reports to Watch: Citigroup (C)
To round out the April 13 trifecta, we have Citigroup Inc (NYSE:C). While I still believe there will be a sector reaction this quarter, Citigroup actually looks the best when we zoom in on financials.
It has nearly 13% growth on tap this quarter, nearly 8% earnings growth on tap long-term, and the lowest forward P/E of all three picks. The only thing lagging is its dividend.
Still, earnings beats from these three big financial names will serve as some tangible proof for the bullish thesis that was was executed immediately after the election. I believe the recent cool-off in the sector has shaken out the doubters and leaves more room for a direct reaction to first-quarter numbers.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.