JPMorgan shares may pop as ‘very strong start’ to bank earnings expected next week, Citigroup says

Published Tue, Oct 4 202211:24 AM EDTUpdated Tue, Nov 8 20226:57 AM EST

JPMorgan Chase shares have received a drubbing this year — but the bank's earnings report next week may offer some relief, according to Citigroup . The stock of the biggest U.S. bank by assets is set to pop after reporting third-quarter results on Oct 14, Citigroup analyst Keith Horowitz said Tuesday in a note. JPMorgan has dropped more than 30% as of Monday's close, among the worst declines in the 24-company KBW Bank Index . The analyst expects the New York-based bank, which typically kicks off the industry's earnings season, to top EPS estimates, helped by better-than-expected net interest income as rising rates allow banks to plow money into higher-yielding assets. He initiated a "positive catalyst watch" on the stock. "We see a very strong start [to bank earnings] with a $0.30 plus top-line beat" for JPMorgan next week, Horowitz wrote. Further, the bank's guidance for NII is "likely to be revised higher as they have been more disciplined than others on being patient to deploy cash, and now have the opportunity to extend duration at higher rates," the analyst said, referring to the purchase of longer-dated bonds. "A 3Q beat and upward guidance revisions would imply a better run-rate into 2023, leaving room for upward revisions to consensus estimates," he added. The Federal Reserve's aggressive inflation-fighting campaign this year has been a double-edged sword for banks; they can earn more interest income on one hand, but there is building concern that the rate increases will trigger an economic slowdown that could bring loan losses. JPMorgan executives have previously said net interest income will be about $58 billion in 2022. In other moves, Horowitz upgraded his recommendation on Bank of New York Mellon shares to "buy" from "neutral" because of the bank's relatively lower exposure to loan losses, as well as a "strong return outlook." He downgrade shares of M & T Bank to "neutral" from "buy" after a run of stock outperformance. JPMorgan, Goldman Sachs and Bank of New York Mellon are among the analysts' "strongest conviction" buy recommendations. —CNBC's Michael Bloom contributed to this report.