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Tag: Earnings Analysis

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Finance/banking

JPMorgan Q1 2024 Earnings: Steady Earnings With Higher Loss Provisions

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Earnings Season Q1-2024 Big Banks

JP Morgan (JPM)

JPMorgan Chase non-GAAP EPS of $4.63 beats by $0.50, revenue of $41.93B (Up 9.5% YoY) beats by $240M

Q1 -24 Net Interest Income, NII declined 4% sequentially as expected, due to deposit margin compression.

Full Year Net Interest Income, NII guidance is unchanged at $90Bn

Adjusted expenses guidance is $1Bn higher at $91Bn V $90Bn for the year.

The bank card services net charge-off rate is projected to be less than 3.50% vs. its previous guidance of 3.50% – this is a relief, but JPM has a tendency to over provide, so not much of a surprise. Similarly, overall Provision for credit losses was lower at $1.88B, vs. consensus of $2.74B and compared with $2.76B in Q4 and $2.28B in Q1 2023. 

The stock is down 2% premarket, the higher adjusted expense guidance seems to be the main culprit.

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Finance/banking

Citi Q1 2024 Beats Earnings Estimates

Earnings Season Q1-2024 Big Banks

*Citigroup (NYSE:C): $61.50*

Beats on both earnings and revenues —Q1 GAAP EPS of $1.58 beats by $0.41.

Revenue of $21.1B (-1.6% Y/Y) beats by $700M.

Citi had higher credit card losses but is providing a lower allowance for Q2. – cost of credit was approximately $2.4 billion in the first quarter 2024, compared to $2.0 billion in the prior-year period, primarily driven by higher card net credit losses, partially offset by a lower allowance for credit losses build.

The stock is up 1.5% pre-market.

Wells Fargo Q1 2024 Earnings: A Mixed Bag Amidst Stable Credit Quality

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Earnings Season Q1-2024 Big Banks

There were no major surprises from the three big banks, JOM, Citi, and Wells Fargo. Credit loss provisions were in line, slightly lower, so that’s a positive, but nothing consequential on earnings/revenue.

Wells Fargo (WFC) $56.50

Wells Fargo Q1 earnings topped Wall Street’s consensus and credit quality remained healthy. Its provision for credit losses came in significantly below the analyst estimate.

Guidance for Q2 remained the same – it still expects net interest income to decline 7%-9% from 2023’s $52.4B. Its 2024 guidance for noninterest expense at ~$52.6B also remained unchanged.

Q1 EPS of $1.20 vs. $0.86 in Q4 2023 and $1.23 in Q1 2023. Excluding $284M, or $0.06 per share, of additional expense for its FDIC special assessment, Q1 2024 earnings would have been $1.26 per share, topping the $1.09 average analyst estimate.

Total revenue of $20.9B, beating the $20.2B consensus, increased from $20.5B in the previous quarter and $20.7B a year ago.

Provision for credit losses was $938M, vs. the $1.34B consensus, falling from $1.28B in Q4 and $1.21B in Q1 2023.

Net interest income of $12.2B, lagging the $12.3B Visible Alpha estimate, dropped from $12.8B in the prior quarter and $13.3B a year ago.

Net loan charge-off, as a percentage of average total loans, was 0.50% vs. 0.53% in Q4 and 0.26% in Q1 2023.

Lower credit losses and provisioning are positive, there’s nothing to write home about on revenue and EPS, which remain tepid.

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Fintech

Block Inc (SQ) at $66: HOLD, Profitability Focus Could Unlock Value

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Block Inc (SQ) $66 Previously known as Square. HOLD

Square has underperformed the market in the last 5 years in a big way, with a negative total return of 10%. When it started, it showed a lot of promise in a cyclical commodity industry of payment processing with the ease of installation, mobile applications and payments, good easy user interface, which differentiated it from the crowd. The Cash app also promised a good deal, with solid growth for years, and is now being well monetized. But the focus on crypto turned off investors from these strengths, especially when Block’s crypto trading account is heavily exposed to crypto performance and pricing. For example, out of $16Bn in 9 months of last year’s revenue, $7Bn was crypto trading VOLUME with a cost of $6.86 Bn with only $140Mn in gross commissions. Institutional investors and analysts like me object to such a loose interpretation of revenue accounting – Square is not a $16Bn company it is a 9Bn company. Secondly, out of the 25% revenue growth in the last 9 months, crypto volume grew 30% compared to the rest of the company’s 21% growth.

The rest of the payment processing business is good, but not GAAP profitable and for a company that has been around for 15 years, that is a sticking point – Stock Based Compensation for the last nine months was almost $1BN so that is going to take a while. However, adjusted operating profits are over $500Mn so that’s a plus and operating cash flow was $450Mn, decent but only 5-6% of revenues.

That said, this company has a lot of scope, especially in its cash application, which now has $22Mn MAU’s Monthly Active Users, and is growing well. Management has promised operating cost discipline in their last call, they have to – there are no significant, sustainable long term competitive advantages in payment processing – it’s a cookie cutter business, with some new wrinkles every few years.

Bottom Line – We saw how well Meta got rewarded last week with their focus on profitability, so if Block continues to execute and focus on it – this could be a surprise and a good gain. The stock has moved up more than 70% from its 52 week low of $39. The valuation is not bad with a P/E of 25x adjusted earnings with adjusted EPS growth of 25%

I would wait till I saw further signs of good execution.