JP Morgan Third Quarter Earnings
I have written quite a few articles that discuss JP Morgan (JPM) which I believe is one of the best managed financial institutions there is. JP Morgan is selling at 20% less than its estimated intrinsic value. However, I believe that JP Morgan shouldn't have shifted its earnings release from before the market up to after its closes. This clearly was done to keep shares from tanking in a volatile market.
The bank has released its third quarter earnings and its missed analyst estimates on revenues and earnings. After reporting its earnings shares fell in after hour trading. During the third quarter JP Morgan saw a tax benefit which made it's effective tax -1.1% compared to 29.7% in the previous third quarter last year. Even with this tax benefit the bank still saw its earnings fall short of Wall Street estimates. I strongly believe that Wall Street **analysts are over reacting to the company's third quarter results.
JP Morgan reported earnings of $6.8 billion or $1.32 per share on revenues of $22.78 billion. Analyst's expected earnings of $7.0 or $1.39 on revenues $23.54 billion. In the third quarter last year the company reported revenues of $25.1 billion.
Even though the company reported lower than estimated earnings and revenues, it did report a 22% rise in net income. The company saw its trading revenues decrease 15% to $4.46 billion from $5.07 billion in the third quarter last year. JP Morgan's revenues from its bonds, currencies, and commodities fell 23% to $2.93 billion. However, on the other hand, revenues from trading stock rose by 9% to $1.40 billion. The bank said in its earnings released that the weakness in commodities and corporate bonds offering was offset by currencies trading, and emerging markets debt and equity derivative offerings.
JP Morgan has a very strong and profitable investment banking unit. In the third quarter its investment banking unit saw a year over year increase of 4.5% to $1.61 billion. However, the company saw a 35% drop in equity underwriting fees. While equity underwriting fell, debt underwriting fees rose by 17% compared to with the third quarter last year. JP Morgan saw its advisory fees for M&A increased by 22% from the previous quarter last year.
During the third quarter JP Morgan extended $29.9 billion in mortgages a 41% increased from the previous quarter last year. JP Morgan is one of the largest mortgage provider by volume as well in profits. The company produced $602 million in profits from its mortgages, a 29% from the previous quartet last year.
Since reporting its earnings Tuesday, the bank has been the worst performer in the Dow Industrial Average. I believe investors and the market is over reacting to JP Morgans third results. JP Morgan is worth more than what the market is valuing the firm at. The company should trade for $80/share. Its third quarter results haven't changed by investment thesis on the company.
Posted in ...Market Commentary