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The Zacks Analyst Blog Highlights: JPMorgan Chase, Citigroup, Wells Fargo, Bank of America and Fujifilm Holdings

Zacks Equity Research

For Immediate Release
Chicago, IL – July 11, 2014 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the JPMorgan Chase & Co. (JPM-Free Report), Citigroup Inc. (C-Free Report), Wells Fargo & Company (WFC-Free Report), Bank of America Corporation (BAC-Free Report) and Fujifilm Holdings Corporation (FUJIY-Free Report).
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Here are highlights from Thursday’s Analyst Blog:

Banking Meets Q2 Earnings: What’s in Store?
U.S. banks are preparing to release their earnings for a second quarter which was characterized by soft trading volumes, dreary client activities, high legal costs and slowdown in reserve release. Decline in fixed income, currency and commodities was also prominent during the quarter.

The overall backdrop was once again similar to the first quarter when earnings were marred, with only a few catalysts saving grace. Naturally, we have an antsy market wondering whether banks managed to put up a better show this time around. The big question on everyone’s mind is, will ‘beat’ dominate ‘miss’ in the second quarter banking results?

Though results are not expected to be as feeble as in the first quarter, the tide may not reverse. The broader Finance sector, of which U.S. banks are part, is expected to witness a 3.6% earnings decline in the quarter, primarily due to a 6.9% decline in revenues. This compares favorably with earnings and revenue declines of 7.1% and 15.2%, respectively, last quarter.

Looking at the 7 medium-level (or M-level) industries in the sector, it appears that Major Banks suffered the most during the quarter and are expected to report a 13.5% year-over-year earnings decline. Banks & Thrifts were also not in a good shape and could witness a 2.8% earnings decline.

(For a detailed look at the earnings outlook for this sector and others, please read our Earnings Trends report)
What Might Have Hurt Q2 Results

A significant decline in capital market revenues is expected to be the major dampener for a number of banks. This is because of the continued downtrend in fixed income, currency and commodities. Among the mega banks, JPMorgan Chase & Co. (JPM-Free Report) and Citigroup Inc. (C-Free Report) have already disclosed that they expect the decline in market revenues in the second quarter to be higher that what they witnessed in the first.

(Read: JPMorgan to Witness 20% Drop in Q2 Market Revs and Citigroup Expects Bleak Q2 Revenues)

A dearth of significant loan growth and pressure on net interest margins from the prolonged low rate environment were other nagging issues that continued to hurt banks.

Further, mortgage banking activities remained sluggish and legal costs climbed.

Factors to Breathe Easier

All eyes are on the mergers and acquisitions (M&A) that should have earned a higher fee income for banks that had played the role of advisors.
Secondly, aggressive cost control through streamlined operations and job cuts should have propelled the bottom line.
Finally, a favorable equity and asset market backdrop as well as encouraging macroeconomic factors – falling unemployment, progressive housing sector and flexible monetary policy – are likely to have lent some support to the financials of banks.
Earnings of Mega Banks in Focus
Based on our proven model, we are not confident about earnings beats for most of the industry leaders. According to Zacks methodology, a stock needs to have both a positive Earnings ESP and a Zacks Rank #3 (Hold) or better for an earnings surprise call.
Earnings ESP is our proprietary methodology for identifying stocks that have the best chances to surprise with their upcoming earnings announcements. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.
Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Here’s how 4 major banks are expected to report:
Wells Fargo & Company (WFC-Free Report)
This Zacks Rank #3 (Hold) banking giant is scheduled to kick-off the Q2 banking earnings season before the opening bell on Jul 11. This marks a change in the banking reporting schedule that usually starts with JPMorgan’s earnings release.
Zacks Consensus Estimate (earnings per share): $1.01
Zacks Consensus Estimate (revenue): $20.8 billion  
Earnings ESP: 0.00%
We cannot conclusively say that Wells Fargo will beat the Zacks Consensus Estimate. Though the company’s Zacks Rank #3 increases the predictive power of ESP, we also need to have a positive ESP to be confident of an earnings surprise call.
JPMorgan Chase & Co.
This Zacks Rank #3 company is scheduled to release its Q2 results on Jul 15, before the opening bell.     
Zacks Consensus Estimate (earnings per share): $1.30
Zacks Consensus Estimate (revenue): $23.7 billion
Earnings ESP: -1.54%
We are not confident about JPMorgan beating the Zacks Consensus Estimate in the upcoming release as it doesn’t have the right combination Zacks Rank and Earnings ESP.
Citigroup Inc.
Again a Zacks Rank #3 stock, this company is scheduled to release its Q2 earnings on Jul 14, before the opening bell.
Zacks Consensus Estimate (earnings per share): $1.09
Zacks Consensus Estimate (revenue): $18.8 billion
Earnings ESP: -3.67%
The combination of Zacks Rank and Earnings ESP doesn’t conclusively show that Citigroup will beat the Zacks Consensus Estimate.
Bank of America Corporation (BAC-Free Report)
This Zacks Rank #3 company is scheduled to release its Q2 results before the opening bell on Jul 16.
Zacks Consensus Estimate (earnings per share): $0.29
Zacks Consensus Estimate (revenue): $21.6 billion
Earnings ESP: 0.00%
Here too, we are not confident of an earnings beat as Bank of America doesn’t have the right combination Zacks Rank and Earnings ESP.
Bottom Line
The expected disappointment from the earnings of forerunners signals weakness in the key banking sector. So, it’s perhaps a prudent idea to stay away from sector ahead of this earnings season. However, if the reality depicts something else with hidden strengths working in favor, one may reconsider banking on banks.    
Keep an eye on our earnings preview and earnings report coverage in the coming days in the ‘Earnings Analysis’ section of www.zacks.com home page.
Fujifilm Upped to Strong Buy

Zacks Investment Research upgraded Fujifilm Holdings Corporation (FUJIY-Free Report) to a Zacks Rank #1 (Strong Buy) on Jul 9, based on its efforts to innovate technologies.

Why the Upgrade?

Fujifilm has been successfully launching new products and technologies to gain a wider market share in the digital world. Recently, the company launched a technology that can change the impression of an image by controlling its texture, i.e. colors and shapes, based on human visual perception. This technology is useful in enhancing the visibility and shape of an image. Moreover, the company launched new firmware for three X-series cameras last month.

In addition, Fujifilm expects its pharmaceuticals business to gain traction in the coming quarters and be a source of high revenue. The Medical Systems business is expected to witness double digit year over year growth in fiscal 2015. Also, sales in the Toyama Chemical and Fujifilm Pharma are anticipated to rise in the coming quarters.

Fujifilm expects revenues for fiscal 2015 to come at ¥2,460 billion, reflecting a year-over-year hike of 0.8%. Operating income is projected at ¥160.0 billion, with an increase of 13.6% from fiscal 2014. Further, Fujifilm estimates the net income for fiscal 2015 at ¥85.0 billion, rising 4.9% year over year. This will lead to earnings of ¥176.36 per American Depositary Receipt (:ADR).

Over the past seven days, the Zacks Consensus Estimate for fiscal 2015 has climbed 2.3% to $1.79 per ADR. The company is expected to report fiscal first-quarter 2015 results (ended Jun 30, 2014) on Jul 30.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

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