- Major US banks kick off Q2 earnings season tomorrow.
- Citigroup, JPMorgan, and Wells Fargo are set to report first.
- These banks' results will offer a window into the overall health of the US economy.
- Unlock AI-powered Stock Picks for Under $8/Month: Summer Sale Starts Now!
The curtain rises on Q2 earnings season this week, with major US banks like JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), and Citigroup (NYSE:C) expected to report tomorrow. While tech giants remain the market's darling, these bank results will offer crucial insights into the health of the US economy and its future.
Analysts Brace for Slowdown
Analysts are generally cautious on bank earnings, predicting little to no growth for Q2. This cautious outlook stems partly from banks setting aside more funds to cover potential loan defaults. The Federal Reserve's latest stress test paints a picture of increased risk, with projected loss rates on consumer and commercial loans reaching 8.1% in a negative scenario - up from 6.7% in 2023.
However, surprises are always possible. Market sentiment is shifting, with growing expectations of the Fed cutting interest rates later this year. This raises a key question: how will lower rates impact the banks' bottom line? Investors will be keenly listening to banks' comments on interest income to gauge the potential consequences.
Beyond Earnings: A Window into the Economy
The big bank reports will be more than just a numbers game. They will provide valuable insights into the overall health of the US economy. Investors will be looking for clues about loan demand, credit quality, and the banks' general outlook for the coming quarters.
This information will be crucial for navigating the market in the coming months. So, let's delve deeper into the consensus forecasts, valuations, and analyst views for each of these major banks.
Citigroup: EPS Downgraded, Revenue Slips, Valuation at Crossroads
For Citigroup, the analyst consensus is for EPS of $1.39, well down on the previous quarter ($1.75) and up by a meager 1.4% year-on-year.
Source: InvestingPro
Revenues are expected to come in at $20.093 billion, down 3.38% year-on-year, after $21.104 billion in the previous quarter.
On the subject of valuation models, Citigroup's InvestingPro Fair Value, which synthesizes several recognized models, stands at $69.18, just 3.3% above Wednesday's closing price.
Source: InvestingPro
What's more, this valuation is all the more credible given that the 22 professional analysts who follow the stock post, on average, have an almost identical target of $69.60.
JPMorgan: Fairly Valued at Current Levels?
ForJPMorgan Chase & Co (NYSE:JPM), EPS is expected to come in at $4.51, slightly better than the previous quarter ($4.44), but more than 5% down on the same quarter of the previous year.
Source: InvestingPro
Sales, on the other hand, are expected to be up 10.5% year-on-year, at $45.66 billion, which is also higher than the $41.394 billion recorded in the previous quarter.
As for JPM's share valuation, InvestingPro's models put it at $213.58, just 2.8% above the current price.
Source: InvestingPro
This valuation is very similar to the average analyst target of $212.60 for the stock.
Wells Fargo: Still More Upside Potential in the Stock?
Finally, the consensus forecast for Wells Fargo & Company (NYSE:WFC) is for EPS of $1.28, up 2.4% year-on-year and higher than the previous quarter's EPS of $1.20. However, this is not the case for Wells Fargo & Company (NYSE: ).
Source: InvestingPro
However, this is not the case for revenues, which are expected at $20.23 billion, down 1.4% year-on-year, and also below Q1 sales of $20.86 billion.
As for the stock's potential, we note that Wells Fargo's InvestingPro Fair Value of $74.16 suggests a 24.2% upside potential, well above that of the other two bank stocks covered in this article.
Source: InvestingPro
Note, however, that analysts seem less optimistic, posting an average target of $64.16, which translates into a bullish potential of 7.4% compared with Wednesday's close.
Conclusion
Market expectations for Citigroup, JPMorgan, and Wells Fargo's upcoming earnings are subdued, but this low bar could lead to pleasant surprises. Over the last 12 months, all three banks have seen their stock prices climb approximately 40%. Analysts and models suggest that Citigroup and JPMorgan have reached their fair value, but Wells Fargo still shows significant upside potential, according to InvestingPro Fair Value.
***
This summer, get exclusive discounts on our subscriptions, including annual plans for less than $8 a month!
Tired of watching the big players rake in profits while you're left on the sidelines?
InvestingPro's revolutionary AI tool, ProPicks, puts the power of Wall Street's secret weapon - AI-powered stock selection - at YOUR fingertips.
Don't miss this limited-time offer!
Subscribe to InvestingPro today and take your investing game to the next level
Disclaimer: This article is for informational purposes only; it does not constitute a solicitation, offer, opinion, advice or investment recommendation and is not intended to induce the purchase of assets in any way.I would like to remind you that any type of asset is evaluated from multiple angles and presents a high risk. Consequently, any investment decision and the associated risk rests with the investor.