JPMorgan (JPM) Stock Falls 5% After Q4 Results, Top-Line Beats but 2022 Expense Outlook Disappoint, Analyst Expects Rising Wage Inflation to be a Key Earnings Theme

January 14, 2022 9:07 AM EST
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Shares of JPMorgan Chase (NYSE: JPM) are down nearly 5% in pre-open Friday after the company reported its Q4 results.

JPMorgan reported Q4 EPS of $3.33, higher than the analyst estimate of $3.01. Revenue for the quarter came in at $30.3 billion versus the consensus estimate of $29.9 billion.

Jamie Dimon, Chairman and CEO, said “JPMorgan Chase reported solid results across our businesses benefiting from elevated capital markets activity and a pick up in lending activity as firmwide average loans were up 6%. The economy continues to do quite well despite headwinds related to the Omicron variant, inflation and supply chain bottlenecks.”

Despite the top-line beat, JPM shares are down after the company missed on the 2022 expense guidance, although its costs were better-than-expected for Q4. For the full year, JPM said it expects to spend $77 billion, up 9% YoY and higher than the $72 billion expected.

“While the market and investors expected higher expenses, we see the ~$6bn sequential increase as a surprise, and we look for more color on the incremental $3.5bn of investments (which they contextualize as ~+20% in tech and tech-adjacent investment, ~+40% in distribution, and ~+35% in marketing). Specifically we think investors will look to understand the expected return and time frame on this step up investment spend. Over the quarter, JPM saw 5% expense growth (+1% vs consensus) and the efficiency ratio came broadly in line with our expectations of 60% on a core basis,” Goldman Sachs analyst Richard Ramsden said in a client note.

Ramsden said that investors are likely to focus on the expense guidance, which came in “significantly higher than expected due to a $3.5bn step up in investment spending as well as higher expected core expense inflation.”

Adam Crisafulli, the analyst at Vital Knowledge, urged investors to pay more attention to JPM’s 2022 expense guide as this may not prove to be an isolated incident but rather a theme.

“The JPMorgan expense guidance is the most important piece of macro news all week for two huge reasons: 1) the risk of wage inflation and 2) the risk of corporate margin headwinds. JPMorgan is among the best-run companies in any industry, which means their 2022 expense guidance probably won’t be an isolated incident and is likely to be a theme over the coming weeks as additional Q4 results get reported. Wage inflation is the bogeyman issue that keeps all central bankers up at night,” Crisafulli said.

JPM stock price closed at $168.23 yesterday and is now indicated to open at $160.13.

By Senad Karaahmetovic | senad@streetinsider.com



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