JPMorgan Chase & Co. (JPM) recently made it onto Zacks.com's list of Most Searched Stocks, therefore, it may be wise to consider some key factors that could impact this stock's performance in the near future.
Over the past month, the company's shares have returned -1.6%, compared to a -4.5% change for the Zacks S&P 500 Composite Index. The Zacks Banking – Major Regional industry, which JPMorgan Chase & Co. belongs to, has fallen 2.1% during that period.The big question here is, what is the future direction for this stock?
Media announcements or rumors of significant changes in a company's business outlook will usually make the stock “trend” and cause immediate price movements, but there are always some fundamental facts that ultimately drive the buy-and-hold decision.
Earnings forecast revision
At Zacks, we prioritize evaluating the changing earnings estimates for a company, rather than focusing on other things, because we believe the fair value of a stock is determined by the present value of its future earnings stream.
Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings forecasts in light of the latest business trends. When a company's earnings forecast goes up, the fair value of its stock also goes up. And if a stock's fair value is higher than its current market price, investors are more inclined to buy the stock, resulting in an increase in its share price. For this reason, empirical research shows a strong correlation between trends in earnings forecast revisions and short-term stock price movements.
For the current quarter, JPMorgan Chase is projected to post earnings of $4.06 per share, down 6.2% from the same period last year. The Zacks Consensus Estimate has moved +0.6% up over the past 30 days.
The consensus earnings estimate for the current fiscal year is $16.78, indicating a change of +3.4% year-over-year. This estimate has changed +2% over the past 30 days.
Looking at the coming fiscal year, the consensus earnings estimate is $16.86, which represents a +0.5% change from what JPMorgan Chase was expected to report a year ago. Over the past month, estimates have changed +1.9%.
The Zacks Rank, our proprietary stock rating tool with a strong outside-audited track record, effectively harnesses the power of earnings estimate revisions to provide a more certainty view into near-term stock price direction. The magnitude of the recent change in consensus estimates, along with three other factors related to earnings expectations, have earned JPMorgan Chase a Zacks Rank #2 (Buy).
The story continues
The chart below shows the evolution of the company's consensus EPS estimates over the next 12 months.
12 Month EPS
Projected Revenue Growth
A company's earnings growth is arguably the best indicator of a company's financial health, but nothing happens if the company can't grow earnings. It's nearly impossible for a company to grow its earnings without growing its revenue over the long term. Therefore, knowing a company's earnings growth potential is very important.
For JPMorgan Chase & Co., the consensus revenue estimate for the current quarter is $41.04 billion, indicating a change of +2.9% year-over-year. For the current and next fiscal years, estimates of $171.34 billion and $167.1 billion indicate changes of +8.4% and -2.5%, respectively.
Last reported results and surprise history
JPMorgan Chase reported revenue of $50.2 billion in its most recent quarter, up 21.5% from the same period a year ago. EPS for the period was $4.40, up from $4.37 a year ago.
Compared to the Zacks Consensus Estimate of $45.04 billion, reported revenues represented a surprise of +11.45%. EPS surprise was +5.01%.
The company has beaten consensus EPS estimates in each of the last four quarters, and has surpassed consensus revenue estimates three times during that period.
evaluation
No investment decision can be efficient without taking into account stock valuation. To predict the future price movement of a stock, it is important to determine whether the current price properly reflects the intrinsic value of the underlying business and the company's growth prospects.
Comparing the current value of a company's valuation multiples such as Price to Earnings (P/E), Price to Sales (P/S), Price to Cash Flow (P/CF) with its historical values helps in identifying whether the stock is fairly valued, overvalued or undervalued. Also, comparing a company with its peers based on these parameters gives a good idea of how reasonably priced its stock is.
The Zacks Value Style Score, a part of the Zacks Style Scores system, evaluates both traditional and non-traditional metrics, categorizes stocks into five groupings from A to F (A is better than B, B is better than C, etc.) to help identify whether stocks are overvalued, fairly valued or temporarily undervalued.
JPMorgan Chase is rated an F on this scale, indicating that it is trading at a premium to its peers. To see the values of the valuation metrics that drove this rating, click here.
Conclusion
The facts discussed here, and many other information on Zacks.com, may help you decide whether it's worth paying attention to the market buzz surrounding JPMorgan Chase & Co. However, its Zacks Rank #2 suggests it has the potential to outperform the overall market in the near term.
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