J.P. Morgan Chase Earnings Preview

J.P. Morgan Chase (NYSE: JPM) will report earnings on Friday morning with its conference call at 8:30AM EST the same day.

Of all of the big banks, J.P. Morgan Chase is the most watched and as one of the first to announce earnings, it will set the tone for the banks during the earnings season.

Expectations

Analyst consensus calls for EPS of $1.39 with revenues of $25.94 billion. This represents a 17 percent gain and a five percent year over year loss respectively.

The Bull Case

That $1.39 EPS estimate doesn’t tell the story. It represents multiple analyst EPS upgrades as the community has become more bullish on the stock. Its stress test results were good enough for the company to gain regulator permission to raise its dividend.

The Dexia lawsuit accusing the company of misrepresenting $1.6 billion worth of mortgage backed securities was narrowed from 65 securitization deals to only five, representing a huge win for the bank. Its $517 million settlement in the MF Global case will go a long way towards restoring account balances for customers affect by the bankruptcy.

Finally, remember the LIBOR price fixing scandal? J.P. Morgan Chase was potentially on the hook for $176 billion in damages from a private litigation but a judge threw out most of the company’s liability. All of these overhangs, along with solid stock performance both now, and throughout the recession, has made this bank a favorite among investors and analysts.

The Bear Case

Three words: The London Whale. Remember the trading scandal that left the company with billions in losses and CEO Jamie Diamon in front of a Congressional committee? That hasn’t gone away and it’s still an overhang on the stock.

82 percent of analysts have a buy rating on the stock but for those trading earnings announcements, they know that all of this J.P. Morgan love puts it in a position of needing a knockout report to avoid profit taking.

Technical Analysis

The stock has moved with the broader market indices as it formed a relatively tight ascending channel. Since the end of February, it formed strong support at $47.00 testing the level twice. It’s 20 and 50 day moving average converged at $48.46 with the stock healthily above the level on reasonable volume.

The stock is in the middle of its ascending channel but off of its recent highs. With RSI at 56, the stock has room to the upside if Friday’s report is strong.