Big Bank Earnings Impress in Q1: 5 Great Picks

On Apr 12, big banks kicked off the first-quarter earnings season on a strong note. Results from JPMorgan JPM, Wells Fargo WFC and PNC Financial PNC defied market expectations by a wide margin. The results didn’t just put fears of widespread underperformance to rest but also allayed concerns of a near-term U.S. economic slowdown.

U.S. banks have been facing a number of challenges, which is why investors were apprehensive about earnings numbers. The Fed’s new-found dovishness, a flattening yield curve, a government shutdown and declining trading revenues are major headwinds confronting the sector at present.

Going by early signs, the sector has emerged relatively unscathed, aided in no small part by rising rates and the Trump administration’s tax cuts. With the likes of Bank of America BAC and Morgan Stanley MS slated to report this week, it makes sense to pick stocks from the sector which are likely to outperform earnings estimates.

JPM Results Lead Banking Charge

The first major bank to report earnings was JPMorgan, the largest U.S. bank in terms of assets. JPMorgan reported first-quarter 2019 earnings of $2.65 per share, which outpaced the Zacks Consensus Estimate of $2.32. Also, the figure was up 12% from the prior-year quarter. Shares of JPMorgan ended the day 4.7% higher.

Despite the Fed’s recent dovishness, the bank benefited from the series of rate hikes implemented by the central bank last year. This resulted in an 8% increase in net interest income.

Growth in JPMorgan’s credit card business also helped power net revenues, which totaled $29.1 billion, up 4% from the year-ago quarter. (Read: JPMorgan Q1 Earnings Beat on Rates, Debt Underwriting)

PNC, WFC Defy Expectations

PNC Financial also benefited from a step up in lending, both to consumers and businesses.  Shares of the bank ended 3.1% higher after reporting first-quarter earnings per share of $2.61, which surpassed the Zacks Consensus Estimate of $2.59.

Meanwhile, Wells Fargo recorded a positive earnings surprise of 11.1% in first-quarter 2019. The earnings beat was primarily attributable to prudent cost management by the bank. However, shares ended 2.6% lower due to a weak profit outlook for 2019.

Rate Hikes, Tax Cuts Boost Bank Profits

It is clear from this early clutch of bank results that the sector benefited substantially from higher interest rates. Fed Chair Jerome Powell adopted a hawkish stance early in his tenure, hiking rates and overseeing a balance sheet reduction exercise. This allowed banks to charge more for credit cards and loans.

Another factor boosting bank earnings was lower taxes. Earlier this month, JPMorgan CEO Jamie Dimon heaped lavish praise on the Trump administration’s tax cuts. Per his annual investor letter, these actions have lifted JPMorgan earnings by $3.7 billion in 2018. According to the Federal Deposit Insurance Corporation, tax reductions lifted bank profits by $28.8 billion in 2018.

Our Choices

Early signs indicate that bank earnings are set to defy expectations on the back of stiffer rates which have helped boost lending margins. Tax cuts have also boosted bank profits significantly this time around. With the majority of banks yet to release their earnings numbers, it makes sense to invest in select banks.

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising with their next earnings announcement. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

You could further narrow down the list of choices by looking at stocks that have a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

Mercantil Bank Holding Corporation AMTB is a bank holding company that operates through its wholly-owned subsidiary bank, Amerant Bank N.A., including its investment and trust services subsidiaries, Amerant Investments Inc. and Amerant Trust N.A.

Powered by the right combination of the two key ingredients — an Earnings ESP of +2.27% and a Zacks Rank of 1 — our proven model shows an earnings beat for Mercantil Bank in the to-be-reported quarter.

The company is expected to report first-quarter 2019 results on Apr 30.

Fifth Third Bancorp FITB has 1,121 full-service banking centers in 10 states throughout the Midwestern and Southeastern regions of the United States.

It has beaten the Zacks Consensus Estimate for earnings in the last four quarters, the average beat being 8.5%.

Backed by the favorable combination of an Earnings ESP of +0.34% and a Zacks Rank of 2, Fifth Third Bancorp is expected beat estimates when it reports first-quarter 2019 results on Apr 23.

First Hawaiian, Inc. FHB is a bank holding company for First Hawaiian Bank.

First Hawaiian has beaten the Zacks Consensus Estimate for earnings in the last four quarters, the average positive surprise being 3.9%.

An Earnings ESP of +0.47% and a Zacks Rank of 2 make us optimistic about an earnings beat for First Hawaiian in the to-be-reported quarter.

The company is likely to report first-quarter 2019 results on Apr 25.

Bank of Marin Bancorp BMRC is a holding company for Bank of Marin.

It has beaten the Zacks Consensus Estimate for earnings in two of the last four quarters, the average positive surprise being 4%.

Powered by the right combination of the two key ingredients — an Earnings ESP of +5.1% and a Zacks Rank of 2 — our proven model shows an earnings beat for Bank of Marin in first-quarter 2019 (results expected on Apr 22).

Veritex Holdings, Inc. VBTX is a bank holding company. The bank operates through its wholly-owned subsidiary, Veritex Community Bank.

An Earnings ESP of +0.58% and a Zacks Rank of 2 raise the chances of an earnings beat for Veritex in first-quarter 2019.

The company is expected to report results on Apr 22.

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The PNC Financial Services Group, Inc (PNC) : Free Stock Analysis Report
 
JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
 
Fifth Third Bancorp (FITB) : Free Stock Analysis Report
 
Bank of America Corporation (BAC) : Free Stock Analysis Report
 
Wells Fargo & Company (WFC) : Free Stock Analysis Report
 
First Hawaiian, Inc. (FHB) : Free Stock Analysis Report
 
Bank of Marin Bancorp (BMRC) : Free Stock Analysis Report
 
Morgan Stanley (MS) : Free Stock Analysis Report
 
Mercantil Bank Holding Corporation (AMTB) : Free Stock Analysis Report
 
Veritex Holdings, Inc. (VBTX) : Free Stock Analysis Report
 
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