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JPMorgan Chase (JPM) Jump-Starts Earnings Season

Our preview of the upcoming week's earnings reports includes JPMorgan Chase (JPM), Delta Air Lines (DAL) and UnitedHealth (UNH).

Third-quarter earnings season is about to get underway, and it will start with reports from blue chips including JPMorgan Chase (JPM, $170.84), Delta Air Lines (DAL, $43.63) and UnitedHealth Group (UNH, $403.71).

Expectations are high for corporate results this time around. Sure, "the 90% second-quarter growth rate probably won't be duplicated for a long time," says Ryan Detrick, chief market strategist at LPL Financial, but "we expect earnings to grow at a very solid pace of over 20% in the third and fourth quarters."

Brad McMillan, chief investment officer for Commonwealth Financial Network, echoes this outlook for a strong earnings season. "Companies continue to sell more and to keep more of the sales as profits," he says. "From a business perspective, confidence remains high, and the results are justifying it. A recovery in the medical news and consumer confidence should help keep those positive trends on track."

And just to underscore these high expectations, John Butters, vice president and senior earnings analyst at FactSet, says 56 of the 500 S&P 500 companies have already issued positive earnings per share (EPS) guidance for the quarter, which is more than 43% higher than the five-year average. 

"If 56 is the final number of S&P 500 companies issuing positive EPS guidance for the quarter, it will mark the fourth-highest number of S&P 500 companies issuing positive EPS guidance for a quarter since FactSet began tracking this metric in 2006," he adds. "The current record is 67, which occurred in the previous quarter (Q2 2021)."

JPMorgan Chase to Kick Off Financials' Reporting Season

That being said, Wall Street will get its first glimpse of third-quarter earnings when blue-chip financial firm JPMorgan Chase unveils its results ahead of the Oct. 13 open.

The Dow Jones stock has been flying higher in recent weeks, benefiting from the steepening 10-year Treasury yield. Bank shares often do well in a rising-interest-rate environment because it allows them to earn better returns on their cash balances, while also raising rates on the loans they give to consumers and businesses.

The shares are currently trading in record-high territory and are up roughly 34% for the year-to-date.  

CFRA Research analyst Kenneth Leon (Buy) will be keeping a close eye on JPM's results. "The U.S. economy is the key driver of bank performance in 2021-2022," he says. And while the Delta variant likely created near-term headwinds for the financial sector, he sees "JPM as the best-managed large, diversified bank, poised to benefit from higher consumer and commercial loan activity."

What's top of mind for Credit Suisse analysts is "the macro backdrop and how it plays through to banking fundamentals," including balance sheet management in the face of a rising yield curve. They'll also be watching for the strength of the capital markets, and "expect management to speak to a healthy pipeline with solid support from mergers and acquisitions (M&A), in particular."

Overall, analysts are projecting JPM's results to be slightly higher than Q3 2020. On average, they're looking for a 2.1% year-over-year (YoY) increase in revenues to $29.1 billion and a 1.7% improvement in profits to $2.97 per share. 

But Credit Suisse analysts point out that per-share estimates range from $2.58 to $3.31. And their own $2.95 per-share estimate comes in below the consensus. Nonetheless, they maintain an Outperform rating on JPMorgan Chase, which is the equivalent of a Buy.

Is Delta Poised for a Post-Earnings Liftoff?

It has been a rocky road to recovery for Delta Air Lines, with the shares off nearly 16% from their early April year-to-date peak. However, since its mid-August lows near $38, DAL is up roughly 17% – and CFRA Research analyst Colin Scarola sees even clearer skies ahead. 

Specifically, Scarola points to research that suggests airline stocks had "strong breakouts to the upside" after previous waves of COVID-19 cases crested. And with the Delta wave seemingly peaking in September, he sees this as "as an opportune time to buy airline stocks, as they are likely due for another post-wave run-up." 

He's also encouraged by data showing U.S. air travel demand is likely to recover to pre-pandemic levels at a much quicker rate than previously anticipated. Scarola currently has a Strong Buy rating on DAL.

Will Delta's Wednesday morning earnings report help keep the wind at the stock's back?

Analysts are certainly projecting a big quarter for the airline. On average, they're calling for earnings of 16 cents per share – a marked improvement over last year's $3.30 per-share loss – and revenues of $8.4 billion (+169.2% YoY).

Raymond James analysts Savanthi Syth and Matt Roberts, however, see these as lofty estimates that are not accounting for several overhangs facing the airline industry. Specifically, they point to "the demand impact of the Delta variant, mostly lower capacity production into year-end 2021 in response to the demand-softness and operational issues, and incremental cost headwinds related to attracting and retaining entry-level workers."

As such, they are anticipating earnings of 5 cents per share. They do rate the shares at Strong Buy, though, calling DAL a "high-quality play due to its historical balanced capital deployment, continued structural advantages (once demand recovers) and opportunity to grow higher margin businesses." 

Analysts Upbeat Ahead of UnitedHealth Earnings

UnitedHealth Group stock received a modest boost in mid-July when the largest publicly traded health insurer raised its fiscal 2021 earnings guidance for the second time this year in the wake of second-quarter earnings and revenue beats.

The company boosted its outlook due to a solid performance from Optum, its pharmacy benefits manager unit, which Oppenheimer analyst Michael Wiederhorn calls a "nice complement to its core managed care operations." The segment "continues to account for a large share of earnings," he adds.

Overall, Wiederhorn (Outperform) is upbeat toward UnitedHealth.

"We believe UNH is well-positioned by virtue of its diversification, strong track record, elite management team and exposure to certain higher growth businesses," he says.

Wiederhorn certainly is not alone in his sentiment. Of the 27 analysts following UNH that are tracked by S&P Global Market Intelligence, 18 call it a Strong Buy, five have it at Buy, with just three rating it a Hold and one saying Sell. Plus, the average 12-month price target of $459.76 represents expected upside of 13.6% over the next 12 months or so.

As for UnitedHealth's upcoming earnings report, slated for release ahead of the Oct. 14 open? The pros, on average, are calling for a 9.4% year-over-year rise in revenue to $71.2 billion. This will fuel a 25.4% jump in earnings to $4.40 per share.

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