Will JPMorgan Chase See a Boost from Recent Earnings?

JPMorgan

With shares of JPMorgan Chase (NYSE:JPM) trading around $54, is JPM an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

JPMorgan Chase is a financial holding company that provides various financial services worldwide. The company is engaged in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing, asset management, and private equity. Financial services companies, such as JPMorgan Chase, are essential for well-functioning economies around the world. As companies continue to operate and economies expand, leaders like JPMorgan Chase will provide valuable products and services that help financial transactions and services run as smoothly as possible. As one of the better big banks, JPMorgan Chase will lead the financial sector for many years.

JPMorgan Chase reported earnings that exceeded expectations last week, but company CEO Jamie Dimon is worried that rising interest rates could cut into the bank’s mortgage profits. Analysts from the company predicted that the housing recovery would continue, despite the possibility of higher interest rates sparked by Federal Reserve Chairman Ben Bernanke’s comments about ending the Fed’s purchases of mortgage bonds.

T = Technicals on the Stock Chart are Strong

JPMorgan Chase’s stock has been on a bullish run over the last couple of years. The stock is now trading at prices not seen since the early 2000s. Analyzing the price trend and its strength can be done using key simple moving averages.

What are the key moving averages? They are the 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, JPMorgan Chase is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

JPM

(Source: Thinkorswim)

Taking a look at the implied volatility (red), and implied volatility skew levels of JPMorgan Chase options, may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

JPMorgan Chase Options

21.74%

0%

0%

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts, compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of today, there is average demand from call buyers or sellers, and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts, and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates, and what that means for JPMorgan Chase’s stock.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. The last four quarterly earnings announcement reactions can also help gauge investor sentiment on JPMorgan Chase’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for JPMorgan Chase look like, and more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

32.23%

33.61%

54.89%

37.25%

Revenue Growth (Y-O-Y)

0.31%

-3.57%

10.16%

5.82%

Earnings Reaction

-0.30%

-0.60%

1.01%

-1.14%

JPMorgan Chase has seen rising earnings and revenue figures over the last four quarters. From these numbers, it seems the markets have had mixed feelings about JPMorgan Chase’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has JPMorgan Chase stock done relative to its peers, Bank of America (NYSE:BAC), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), and the overall sector?

JPMorgan Chase

Bank of America

Citigroup

Wells Fargo

Sector

Year-to-Date Return

24.41%

19.72%

31.12%

26.68%

24.68%

JPMorgan Chase has been an average relative performer, year-to-date.

Conclusion

JPMorgan Chase operates in a financial industry that is the backbone of the U.S. economy, providing financial products and services that consumers and companies require on an ongoing basis. The stock has been on a bullish run over the last couple of years, and is now trading at prices not seen since the early 2000s. Over the last four quarters, the company has seen rising earnings and revenue figures, but these reports have produced mixed feelings among investors. Relative to its peers and sector, JPMorgan chase has been an average year-to-date performer. Look for JPMorgan Chase to OUTPERFORM.

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