Investing

Earnings Previews: Citigroup, JPMorgan, Morgan Stanley, UnitedHealth, Wells Fargo

Paul Ausick

Published: October 12, 2022 9:36 am

The three major U.S. equity indexes closed mixed on Tuesday. The Dow Jones industrials ended the day up 0.12%, the S&P 500 closed 0.65% lower, and the Nasdaq ended down 1.10%. Seven of 11 sectors closed lower, with communications services (1.63%) and tech (1.52%) posting the biggest losses. Real estate and consumer staples posted the greatest gains, 1.02% and 0.93%, respectively.

The Bank of England’s announcement that it would be buying gilts until Friday gave traders the jitters. Then one of the central bank’s governors told pension funds they needed to rebalance by Friday as well.

The producer price index rose 0.4% month over month in September, ahead of a consensus estimate for a rise of 0.2%. Last month’s drop was 0.1%. Minutes of the last FOMC meeting will be released in the afternoon.

All three major indexes opened higher on Wednesday.

Before markets opened Wednesday morning, PepsiCo reported better-than-expected earnings and revenue. The company also raised fiscal year earnings per share (EPS) guidance. Shares traded up by about 2.7% in the premarket.

September-quarter earnings reporting season hits the ground running before markets open on Thursday. BlackRock, Delta Air Lines, Taiwan Semiconductor and Walgreens are all posting quarterly results.

Here is a look at five companies set to report their quarterly results first thing Friday morning.

Citigroup

Shares of Citigroup Inc. (NYSE: C) have dropped by nearly 44% over the past 12 months. The stock posted its 52-week low on Tuesday and its 52-week high almost exactly a year ago.

Citi CEO Jane Fraser has begun a restructuring aimed at regaining lost ground in investment banking and has been beefing up its European advisory group. Combined with added loan-loss reserves, profits are likely to be underwhelming at the six largest U.S. banks. Earlier this week, Bloomberg estimated that Citi and the five other biggest U.S. banks will report salting away another $4.5 billion in loan-loss reserves during the third quarter. Demand for loans continues to grow, but the overall economy raises questions about loan losses. If Bloomberg’s forecast is realized, the six largest U.S. banks will have increased their loan-loss provisions in three consecutive quarters.

Of 24 brokerages covering the company, nine have a Buy or Strong Buy rating and 14 have a Hold rating. At a recent price of around $40.50 a share, the upside potential based on a median price target of $54.00 is 33.3%. At the high price target of $83.00, the upside potential is about 105%.

Third-quarter revenue is forecast at $18.25 billion, which would be down 4.7% sequentially but up 6.4% year over year. Adjusted EPS are forecast at $1.50, down nearly 35% sequentially and by 30.2% year over year. For the full 2022 fiscal year, analysts are forecasting EPS of $7.21, down 28.9%, on revenue of $75.2 billion, up 4.6%.

Citigroup stock trades at 5.6 times expected 2022 EPS, 5.7 times estimated 2023 earnings of $7.15 and 5.1 times estimated 2024 earnings of $7.98. The stock’s 52-week trading range is $40.92 to $73.22, and Citi pays an annual dividend of $2.04 (yield of 4.9%). The total return to shareholders for the past year was negative 41.6%.

JPMorgan

The largest (by market cap) of the big U.S. banks, JPMorgan Chase & Co. (NYSE: JPM) has seen a share price decline of almost 39% over the past 12 months. Like Citi, JPMorgan posted its 52-week low on Tuesday, and its 52-week high will roll off the board on October 25.

The Fed’s interest rate hikes have turned from being a banker’s best friend to being a major threat, according to CEO Jamie Dimon, who has said the U.S. economy will be in recession by next year. Among his comments, “The U.S. economy currently is actually doing quite well … consumers have money. But you can’t talk about the economy without talking about stuff in the future — and this is serious stuff.”

Of 26 analysts covering the stock, 15 have a Buy or Strong Buy rating, while another 10 rate the shares at Hold. At a share price of around $102.00, the upside potential based on the median price target of $135.00 is 32.4%. At the high price target of $162.00, the upside potential is 58.8%.

Analysts are expecting JPMorgan to report third-quarter revenue of $31.88 billion, up by about 3.8% sequentially and by 7.5% year over year. Adjusted EPS are forecast at $2.86, up 3.6% sequentially but 16.6% lower year over year. For the full 2022 fiscal year, estimates call for EPS of $11.10, down 27.5%, on revenue of $126.29 billion, up 3.8%.

JPMorgan stock trades at 9.2 times expected 2022 EPS, 8.2 times estimated 2023 earnings of $12.42 and 7.7 times estimated 2024 earnings of $13.23. The stock’s 52-week range is $101.85 to $172.96. JPMorgan pays an annual dividend of $4.00 (yield of 3.81%). Total shareholder return for the past 12 months was negative 36.9%.

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Morgan Stanley

Morgan Stanley (NYSE: MS) has seen its share price drop by nearly 21% over the past 12 months. From the 52-week high set in February, the stock is down nearly 30%.

In addition to all the troubles facing the other big banks, Morgan Stanley is among the lenders that agreed to put up $13 billion for Elon Musk’s buyout of Twitter. It looked like a good deal at the time, but now it looks like the lenders could face a cold market for debt. According to @9fin, the bank is on the hook for $5.5 billion in loans to Musk and that could translate into tens, if not hundreds, of millions in writedowns.

Sentiment remains bullish on the stock, with 20 of 28 brokerages assigning a Buy or Strong Buy rating. Another seven rate the stock at Hold. At a share price of around $77.00, the upside potential based on a median price target of $96.50 is 25.6%. At the high target of $115.00, the upside potential is 49.4%.

The consensus estimate for third-quarter revenue is $13.31 billion, up about 1.4% sequentially and down about 9.8% year over year. Adjusted EPS are forecast at $1.51, down about 1.2% sequentially and by 26.0% year over year. For the full 2022 fiscal year, analysts are looking for revenue of $54.66 billion, down 8.5%, and EPS of $6.62, down by 19.5%.

Morgan Stanley stock trades at 11.6 times expected 2022 EPS, 10.0 times estimated 2023 earnings of $7.68 and 8.9 times estimated 2024 earnings of $8.64 per share. The stock’s 52-week range is $72.05 to $109.73, and the bank pays an annual dividend of $3.10 (yield of 3.95%). Total shareholder return over the past year was negative 18.3%.

UnitedHealth

The country’s largest health insurer, UnitedHealth Group Inc. (NYSE: UNH) has posted a share price increase of 23.4% over the past 12 months. UnitedHealth’s stock posted its 52-week low on October 13, 2021, and its 52-week high in August.

A week ago, UnitedHealth completed its merger with Change Healthcare, just two weeks after the U.S. Department of Justice lost a lawsuit against the $8 billion, all-cash deal. Over the past year, the health care providers and services industry has added nearly 18%, virtually the mirror image of the S&P 500, which has lost just over 18% during the same period.

Analysts remain strongly bullish on the stock, with 21 of 26 having a rating of Buy or Strong Buy and three more rating the shares at Hold. At a share price of around $499.80, the upside potential based on a median price target of $587.50 is about 17.5%. At the high target of $635.00, the upside potential is 27.1%.

The consensus estimate for third-quarter revenue is  $50.54 billion, up about 0.3% sequentially and by 11.3% year over year. Adjusted EPS are tabbed at $5.44, down 2.4% sequentially but about 20.4% higher year over year. For the full 2022 fiscal year, analysts anticipate EPS of $21.89, up 15.1%, on revenue of $322.37 billion, up 12.1%.

UnitedHealth stock trades at 22.8 times expected 2022 EPS, 20.1 times estimated 2023 earnings of $24.87 and 17.6 times estimated 2024 earnings of $28.35 per share. The stock’s 52-week range is $368.11 to $553.29. UnitedHealth pays an annual dividend of $6.60 (yield of 1.32%). Total shareholder return for the past 12 months was 25%.

Wells Fargo

Wells Fargo & Co. (NYSE: WFC) is the nation’s third-largest bank (measured by market cap), and its share price has dipped by almost 15% over the past 12 months, the smallest decline of the country’s six largest banks. Since posting a 52-week low in mid-June, the stock has added about 10%.

Wells Fargo has said it plans to reduce its exposure to the U.S. housing market due to higher interest rates and a cooler market for mortgages. The good news for the bank is that most analysts believe that the remaining downside from its 2016 fake accounts scandal is likely to be less damaging.

Analysts remain bullish about Wells Fargo. Of 26 brokerages covering the bank, five have a Hold rating and 21 have a Buy or Strong Buy rating. At a share price of around $40.20, the upside potential based on a median price target of $52.00 is 29.4%. At the high price target of $65.00, the upside potential is about 61.7%.

Analysts are expecting second-quarter revenue to total $18.78 billion. That would be up 10.3% sequentially and essentially flat year over year. Adjusted EPS are forecast at $1.09, up 33.3% sequentially and down 10.7% year over year. For the full 2022 fiscal year, EPS are forecast to slip by 17.5% to $4.02, down 17.5%, and revenue is expected to decline by 6.6% to $73.28 billion.

Wells Fargo stock trades at 10.0 times expected 2022 EPS, 7.7 times estimated 2023 earnings of $5.20 and 6.7 times estimated 2024 earnings of $5.98. The stock’s 52-week range is $36.54 to $60.30. Wells Fargo pays an annual dividend of $4.20 (yield of 2.9%) and total shareholder return for the past 12 months is negative 13.1%.