JPMorgan Earnings in Focus as Q1 Season Kicks Off

First-quarter earnings season kicks off later this week. Among the notable names on the earnings calendar are big bank JPMorgan Chase (JPM, $132.46), air carrier Delta Air Lines (DAL, $36.79) and insurance giant UnitedHealth Group (UNH, $542.58).

The first three months of 2022 will be remembered as a period of extreme volatility for stocks. In addition to red-hot levels of inflation and supply-chain challenges carried over from 2021, Russia's attack on Ukraine sent markets into a tailspin – and catapulted commodities prices higher.

And to combat these higher prices, the Federal Reserve initiated its first rate-hiking cycle in more than three years.

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Earnings take on more importance this time around "with valuation expansion potentially tough to come by due to rising interest rates and high inflation," says Jeff Buchbinder, equity strategist at independent broker-dealer LPL Financial.

Still, corporate America is in great shape, he adds, with 2022 earnings estimates now higher than they were at the start of the year.

"Despite margin pressures related to supply-chain disruptions and intense inflation pressures, we believe S&P 500 companies may deliver as much as 10% earnings per share (EPS) growth in the first quarter, compared to the current consensus estimate of about 5%," Buchbinder says.

JPMorgan Chase: Analysts Expect Underwhelming Q1 Earnings

Big banks typically mark the start of earnings season and several large financial stocks are set to report this week. Included among them is JPMorgan Chase, which will unveil its first-quarter results ahead of Wednesday's open.

"The U.S. economy is a key driver to consumer and commercial loan results, while geopolitical risks from Russia's invasion of Ukraine have hurt investment banking in Q1 2022," says CFRA Research analyst Kenneth Leon.

Leon adds that while the first quarter is typically one of the strongest for capital market and asset management businesses, that will not be the case this year.

He expects big banks will address the health of the U.S. economy and the implications of the Ukraine war in investor conference calls, but anticipates net interest income will likely post year-over-year (YoY) gains in the low single digits, while revenues and earnings for the industry will be negative relative to Q1 2021.

For JPM stock, specifically, consensus estimates are for earnings of $2.69 per share (-40.2% YoY) and revenue of $31.0 billion, up just 1.7% from the year-ago figure.

Looking ahead, though, Leon believes that "a continued rise in both the 10-year and 30-year U.S. Treasury rates may provide a lift to bank earnings in the second half of 2022."

He adds that large bank stocks are undervalued at current levels based on several metrics, including price-to-earnings (P/E) ratios. Indeed, JPM stock is currently trading at 11.8x analysts' 2022 earnings estimates, well below the S&P 500's P/E ratio of 25.7.

Delta Air Lines Should Benefit From "Rapid Recovery"

Delta Air Lines entered 2022 shaking off headwinds from the omicron variant of COVID-19, only to encounter spiking oil prices thanks to Russia's attack on Ukraine. The travel stock hit a 2022 bottom near $30 in early March, but has since recovered back to the $37 per-share mark after the airline said it will raise ticket prices in response to surging fuel costs.

Can a solid earnings report keep the wind at DAL stock's back?

While airline stocks are best for risk-tolerant investors, says Argus Research analyst John Staszak (Buy), "Delta's customers are among the most satisfied of any legacy carrier and have provided the company with sustained pricing power."

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The analyst adds that at a mid-March industry conference, Delta management "said that demand is stronger than it has ever been and that it has never seen such a rapid recovery."

Delta Air Lines will unveil its first-quarter results ahead of the April 13 open. Analysts, on average, are projecting a per-share loss of $1.32 – a significant improvement over the $3.55 per-share loss the airline incurred in Q1 2021. On the top line, the consensus estimate is for $8.8 billion, +124.7% YoY.

Outperforming UnitedHealth Expected to Post Solid Q1 Earnings

UnitedHealth Group has shown resilience during a rough start to 2022 for the broader market. Shares of the Dow Jones stock are up around 8% for the year-to-date, compared to a 5.9% loss for the S&P 500.

As for the insurer's first-quarter earnings report – due out ahead of the April 14 open – "expect another quarter of robust revenue and customer growth at OptumHealth driven by the ongoing move towards value-based care and further build out of the care delivery offering," says Truist Securities analyst David MacDonald (Buy).

The analyst adds that falling COVID-19 cases will likely have a positive impact on diversified managed care as a whole, while M&A activity will "not only augment core trends, but also drive further broadening of the service offering/enhanced positioning around value-based care."

As for UNH, MacDonald calls the company's $5.4 billion acquisition of home healthcare firm LHC Group (LHCG) – announced in late March – a "home run" that will be "highly complementary to Optum’s already broad suite of post-acute services."

Overall, analysts are targeting earnings of $5.37 per share (+1.1% YoY) and revenue of $78.8 billion, a 12.2% improvement over the previous year.