BKR - Big Banks Kick Off Fourth Quarter Earnings Season

Last week ended with the tech-heavy Nasdaq recording its worst week since February as the Fed announced it might lift short-term interest rates in March. But this week, the fourth quarter earnings season is officially kicking off with the big banks, namely JP Morgan Chase (NYSE: JPM), Wells Fargo & Company (NYSE: WFC) and Citigroup Inc (NYSE: C) which are all poised to benefit from potentially three interest rate increases in 2022. Several big-name stocks are also due to report their results, such as Delta Air Lines Inc (NYSE: DAL) and Taiwan Semiconductor Manufacturing Company (NYSE: TSM).

Delta

Before the markets open on Thursday morning, Delta will announce its fiscal fourth-quarter results and hopefully show continued fundamental improvements and upbeat guidance.

Wall Street expects the see earnings of 12 cents per share on revenue of $9.14 billion as Bank of America Corporation (NYSE: BAC) praised the company’s strong balance sheet and the limited share dilution potential, along with its capacity discipline relative to its peers that allowed it to end 2021 on a positive note. In mid-December, management said that it expects to reach roughly 90% of 2020’s pre-pandemic passenger volume, confirming it is underway to a full rebound by 2024 that is expected along with $9 billion in annual cash flow and strong earnings growth.

But investors are concerned about the pressure from the omicron variant as the company returned to profitability in adjusted last quarter’s earnings for the first time since 2019, as fuel costs continue taking a bigger bite out of profits.

Delta’s progress at gaining efficiency and boosting operating margin and cash flow will be in the spotlight as success in these areas should lay the groundwork for better returns as the overall industry recovers over the following few years.

Taiwan Semiconductor

Also on Thursday, we’re in for a few more interesting stories as the semiconductor shortage is affecting many industries. A global leader in the industry, TWSC counts even Nvidia Corporation (NASDAQ: NVDA) and Apple Inc (NASDAQ: AAPL) as its customers.

Back in October, executives guided Q4 sales to be between $15.4 billion and $15.7 billion, with the 23% spike translating to improved production volumes. Investors are also hoping for significant price increases that would reflect the company’s leadership position.

The outlook for both the undergoing quarter and the year should be bright as the company is poised to benefit from strong demand for tech products, assuming there are no major input shortages or production bottlenecks.

JPMorgan Chase

Before the markets open on Friday morning, Wall Street expects JPMorgan to report earnings of $2.98 per share on revenue of $29.8 billion.

After stellar 2021 results, investors are hoping for an encore due to JPMorgan’s mix of earnings growth, income and value that earned it the reputation of being the best-executing bank among its peers. Repeating and even topping that performance this year doesn’t have to be as difficult as it might appear with Fed on their side. As with other money-center banks, 2022 will present multiple tailwinds, including the likelihood of interest rate increasing which should boost JPMorgan’s net interest margins. Additionally, its ongoing investments in technology, marketing, and its organic expansion initiatives to develop new branches, should fuel earnings per share to above pre-Covid heights.

Wells Fargo

On Friday before the open, Wall Street expects Wells Fargo to report earnings $1.09 per share on revenue of $18.69 billion, but more importantly, results will answer the question as to whether a successful transition from regulatory remediation is complete, and if the bank can finally put all its legacy issues behind.

With the stock up 12% year to date, the market seems willing to look beyond Wells Fargo’s legacy issues as the bank has strengthened its financial position and improved efficiency ratios. While there are still plenty of challenges, 2022 is poised to be a pivotal year, as increased interest rates should boost its net interest margins and help drive earnings per share above pre-Covid levels.

Citigroup

Like other commercial banks, Citigroup’s stock experienced a strong rebound due to the recent rise in U.S. Treasury yields and prospects of increased interest rates. Before the open on Friday morning, Wall Street expects Citigroup to report earnings $1.71 per share on revenue of $16.98 billion.

Although it has been facing significant regulatory pressures to resolve issues related to internal controls regarding compliance, data, and risk management, including an imposed $400 million fine and a cease-and-desist order, it is still the fourth-largest bank in the U.S.

Last quarter, robust demand across its consumer and investment banking segments helped sales rise 3% with earnings expanding much faster as recovery from the pandemic continues to drive corporate and consumer confidence, which in turn is creating very active client engagement, according to CEO Jane Fraser. Besides more evidence of that recovery, Citi needs to show progress on closing the performance gap in core efficiency metrics compared to its peers as it continues its multi-year turnaround.

2022 promises to be tricky

Next week, reports from freight giant J.B. Hunt Transport Services Inc. (NASDAQ: JBHT), consumer-products company The Procter & Gamble Company (NYSE: PG) and oil-field-services company Baker Hughes Company (NASDAQ: BKR) will continue the fourth quarter earnings season. But investors will not only be looking at the bottom line but also how companies got there in an environment of rising costs for everything from raw materials to labor to transportation.

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