Event: JPM reports Q2 earnings tomorrow before the open. The options market is implying about a 2.5% move, which is slightly higher than the 4 qtr avg move of 2.25%, and lower than the 8 qtr avg of about 3.25%.
Sentiment: Wall Street analysts have been quite positive on the stock for a long time, with 32 buys, 7 holds, and 2 sells, with an avg 12 month price target of $58.25.
Options Open Interest: Total open interest is evenly split between puts and calls, with Jan14 the expiry with the most concentrated open interest.
Fundamentals: The main reason so many analysts like JPM is that its valuation on an earnings (9.5 P/E) or balance sheet (1.05 P/B) basis. However, investors view the valuations discounts (relative to JPM’s own historical valuation) as reasonable given the risks of increased regulation and the spotlight JPM has had on it among regulators ever since the London Whale fiasco.
JPM has also fallen out of favor relative to the commercial and regional banks in the past 2 months because of the broader market volatility, particularly in the bond market. The rates and credit desks are the largest trading desks at JPM, so there are some concerns that JPM’s trading revenues were hurt in the past quarter. In addition, European banks continue to act weak, which leads to concern about internationally exposed banks like JPM.
This quarter’s earnings expectation is $1.45, but given the stock’s rally into the number, my hunch is that JPM will need a comfortable beat to attract new buyers to keep the rally going.
- Price Action / Technicals: JPM stock has not been able to make a new high on this rally, though it got very close today. $55.90 is the high from May,, and the 50 day moving average comes in around $52.50:
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1 year chart of JPM, 50 day ma in pink, 200 day ma in black, Courtesy of Bloomberg
Volatility Snapshot: JPM implied and realized vol are at the low end of the past year:
Following last earnings, 30 day implied vol went into the high teens. Nothing stands out about the current situation.
MY VIEW: JPM is fundamentally cheap, but with more potential headwinds than most financial stocks given the heightened scrutiny. It also could have taken a hit in its trading book on the fast move higher in rates in the past 2 months. However, volatility is fair, so no great option structures stand out here.