Both JPMorgan (JPM) and Citigroup (C) report Wednesday morning, January 15th, 2025 before the opening bell.
Both stocks had a fabulous 2024, greatly outperforming the SP 500’s +25.02% total return, as JPMorgan printed a +43.63% total return in calendar 2024, while Citigroup returned +41.08% for the last calendar year.
Bank and financial stocks rallied sharply after President Trump’s presidential election victory, as well the Republican control of Congress, as the market interpreted this as an expectation of a lower degree of bank regulation going forward and lower capital requirements for the major banks and brokerage firms over the next few years.
Now in order to be credible with readers, while the above paragraph has some freight to it, I do have to remind readers that, under the Bush 41 Administration, from 2000 to 2008, major bank reform came in the form of the Graham, Leach, Bliley bill that repealed (to some degree) Glass, Steagall, or the Depression Era bank reforms, and that came home to roost in 2008, and not in a good way.
The point is, as students of economic history – not all reform is good, since it depends a whole lot on what the future looks like.
If readers learned anything from Covid and the pandemic in 2020, it’s recession risk that causes problems for the US banking system, particularly the larger what used to be called “money-center” banks since so much of the assets on a mega-banks balance sheet are credit-related.
However, if December ’24’s nonfarm payroll report was any reliable tell, and a slowly rising inflation rate, America is still some distance away from a meaningful US recession, and the need for meaningful credit reserves, or a “macro” that might cause investors to materially reduce their bank stock weighting.
Here’s the particulars of each bank.
JPMorgan (JPM):
On Wednesday morning, analyst consensus for JPM is expecting EPS of $4.11 on net revenue of $1.7 billion, for expected y-o-y growth of 45% on net revenue growth of 8% respectively. That would be a good quarter for JPMorgan, after the Q3 ’24 results showed just 1% EPS on 6% net revenue growth for the quarter ended Sept ’24.
JPMorgan has an easy EPS compare vs Q4 ’23, when EPS fell 15% y-o-y, as the bank took a $2.8 billion loan-loss reserve, preparing for that “expected” recession that never was.
The recent rise in Treasury yields is actually a net positive for the bigger banks, as looking at the some of the analyst commentary after Q4 ’24 financial results were released, expected “net interest income” (NII) to expected to fall in 2025, and now with the election results and the rising Treasury yields, fed funds rate reductions have – for the most part – been taken off the table.
Guidance in going to be interesting for all the big banks, and with JPM as the grandaddy of them all, and the best ROE and ROTCE (return on tangible common equity), expect it to be low-balled (again).
JPM Valuation talk:
What’s interesting looking at consensus estimates is that Wall Street analysts have been looking for that never-ending recession, and thus have consistently under-estimated EPS and revenue growth each year. If JPM just meets Q4 ’24 consensus, for the full-year EPS will have grown 20% y-o-y on 11% revenue growth for a bank trading at 13x and 14x expected 2024 and 2025 EPS estimates.
Just 4 quarters ago, in Q1 ’24, full-year ’24 EPS and net revenue growth was expected at +2% and +3% respectively.
For 2025, full-year calendar year EPS and net revenue estimates are for $17.26 in EPS and $172.1 billion in net revenue for “expected” EPS growth of -9% on expected net revenue growth of -2%, so analysts continue to repeat the same pattern, of low-balling the coming year’s numbers.
At some point the Street will get it right.
No question JPM is the most expensive in terms of traditional book valuation, of all the big banks, such as Bank of America (BAC), Wells Fargo (WFC) and Citi (C), but JPM has produced the net income and both ROE (return on equity) and ROTCE, which no other large bank comes close to in the last few years.
JPM Segment analysis:
The commercial banking segment was folded into the Corporate and Investment Bank (CIB) recently at JPM, so the CIB segment is now roughly high 30% – low 40% of net revenue and low to mid 40% of net income, but it’s also the most capital-market sensitive of the rest of the segments.
For the 7 quarters from March ’22 through Sept ’23, the CIB segment only showed y-o-y net income growth in one of those quarters.
JPM conclusion:
JPM’s high tick in late 2021, in terms of the stock price, was $172 per share, and then during the 2022 bear market the stock fell all the way to $102.88 in October ’22 for a peak-to-trough correction in JPM of 41%, with the reason being the CIB’s capital market sensitivity (read the above paragraph again).
The point being JPM’s stock price will feel a bear market.
Maybe a bigger issue than credit and capital-market sensitivity is the fact that Jamie Dimon could be leaving the bank in the next few years. Arguably one on the top 10 CEO’s in the SP 500 in the last 25 years, I don’t see how JPMorgan – as good as it is today – can remain unscathed after a CEO of that stature deports.
The one positive for the big banks in terms of the constant recession calls the last two years is that the banks have been adding to loan-loss reserves gradually as capital has improved, so the fact is the bigger banks could be in a good capital position already, since it’s unlikely we see a US recession like 2008, or 2020, the next time around.
The analysts are lowballing expected 2025 EPS and net revenue growth for ’25 for JPM already, as the above numbers show, and that’s been proven wrong the last few years.
JPM is now this blog’s single-largest client position after reducing Microsoft’s weight in late ’24. Still, this blog has been selling smaller positions in JPM, on ’24’s return, just to keep it from being too big of a position for clients.
Citigroup (C) earnings preview:
If you want to have two stocks bookend, a diversified bank portfolio, JPMorgan and Citi would be those two stocks.
- While JPM’s price-to-book (PB) and price-to-tangible-book ratios are 2.08x and 2.49x respectively, Citi’s same PB and PTBV are 0.62x and 0.70x.
- While JPM’s ROTCE is 15% to 18% routinely, Citi’s is 8% and trying to get to 10% – 11%.
- While JPM’s current dividend yield is 2.08% (actually a little higher than suspected), Citi’s current dividend yield is 3.05%.
Citi was run by Sandy Weill and John Reed from the 1980’s to 2000, while Chuck Prince ran Citi through the 2008. Ironically it was Sandy Weill who I thought fired Jamie Dimon from Citi in the mid to late ’90’s. Talk about sweet revenge.
Citi as a global consumer bank never really worked out and Citi’s new CEO Jane Fraser is trying to remedy that, at least to some extent. Readers can tell from the ROTCE that Citi has too many assets and not enough net income.
Here’s what’s interesting about Citi’s EPS estimates:
- 2027: EPS expected to rise 28% to $11.75
- 2026: EPS expected to rise 26% to $9.20
- 2025: EPS expected to rise 26% to $7.33
- 2024: EPS expected to fall 1% to $5.84
- 2023: EPS fell 14% to $5.88
- 2022: EPS fell 33% to $6.81
For Citi, current 2025 consensus estimates are looking for $7.33 in EPS on $82.2 billion in net revenue for expected y-o-y growth of 26% and 3% respectively.
For Q4 ’24, consensus EPS is $1.22 on $19.5 billion in net revenue, for expected y-o-y growth of +45% and +12% respectively. On December 10, ’24 Citi came out and reiterated that net interest income (NII) for Q4 ’24 would be at the higher end of the expected 4% – 5% range discussed on the Q3 ’24 call.
The key question is will analyst consensus and management guidance support that expected EPS growth for 2025 ? Mike Mayo has been out frequently pounding the table on the stock.
Citi valuation:
Citi’s average expected PE from ’25 to ’27 is 8x, which is really remarkable given those expected EPS growth rates listed above, which average 26%. Something seems out of whack, maybe this is the reason Mayo is pounding the table on the stock.
On just about any bank stock valuation metric, Citi looks cheap, except for those ROE/ROTCE measures. It’s the book value and tangible-book value where Citi still remains compelling.
JPM and Citi Conclusion: There is a lot of bullish sentiment around the banks and brokers thanks to the expected easing of capital rules and the healthy capital markets, but readers will also likely see a decent correction in the sector, especially as the 10-year Treasury yield closes in on 4.99% or the October ’23 multi-year high tick for that yield.
JPMorgan’s stock closed Friday, January 10th, 2025, sitting right on it’s 50-day moving average.
For value investors, Citi is a good stock to own, being still at a steep discount to book value, a decent dividend yield, with price targets for Citi between $80 – $100 per share. Clients have a 2% position in the stock with an average cost basis of $54.
Value investors have been pounding the stock on Citi for years, after it fell from $100 back down to the $40’s after the pandemic.
Analyst consensus is more negative on JPM’s EPS growth in 2025, while looking for healthy growth Citi in 2025.
Personally I’d love to see a 10% correction in both.
None of this is advice or a recommendation, but only an opinion. Past performance is no guarantee of future results. Investing can and does involve the loss of principal even for short periods of time. Typically this blog does earnings summaries for those companies where an earnings preview is written, but it may not get written, and if it does it may not be timely.
Thanks for reading.