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Zacks Earnings Preview: J.P. Morgan, Wells Fargo and Fifth Third Bancorp

Zacks Equity Research

For Immediate Release

Chicago, IL- June 3, 2013– Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes J.P. Morgan (JPM), Wells Fargo (WFC), Fifth Third Bancorp (FITB).

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Banks Pulling Up Estimate Revisions

The revisions trend has started moving in a positive direction, with more earnings estimates going up instead of down. Even accounting for the typical seasonal behavior of revisions activity which peaks during earnings seasons and tails off after the season is over or close to over, the emerging trend in revisions appears significant.

The ratio doesn’t tell you the ‘magnitude’ of the revisions, only the direction. The ‘50%’ level (the dark line) is the dividing line between positive and negative trends, with readings above 50% implying more positive than negative revisions. Our analysis shows that readings between 45% and 55% don’t offer material insights into the magnitude of revisions. It is only readings above 55% and below 45% that offer bullish and bearish signals about the magnitude of earnings revisions.

As you can see in the charts above, the revisions trend for the S&P 500 as a whole is still in neutral territory though moving in the right direction. But see the fast emerging positive trend in the Finance sector for both this year and next (the green line). The sector’s revisions ratio currently (as of 5/24) stands at 72%, by all means bullish territory. This pronounced positive bias is at play for many industry players that are experiencing positive estimate revisions, including J.P. Morgan (JPM), Wells Fargo (WFC), Fifth Third Bancorp (FITB) and many others.

The trend makes perfect sense as higher interest rates may be a hindrance for other industries, but it’s beneficial for the Finance sector’s earnings. Flat net-interest margins have been a permanent feature of the sector’s -- particularly banking’s -- earnings picture in recent quarters. The charts also show the trend in the Technology sector, the largest in the S&P 500, to spotlight Finance’s improving outlook.

The Finance sector’s positive earnings outlook is a function of the rising trend in interest rates. But whether that trend continues or reverses course in the coming days will depend to a large extent on economic data this week, particularly Friday’s May non-farm jobs report. A positive jobs report on Friday will significantly increase the odds of a ‘Taper’ announcement in the coming FOMC meeting.

The market’s anticipation of the Fed’s plans to taper its monthly bond purchases has been the primary driver pushing bonds yields higher. There is plenty of other economic data coming out this week as well, including the two ISM surveys, motor vehicle sales numbers, Construction Spending and the Fed’s Beige Book.

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Read the analyst report on JPM

Read the analyst report on WFC

Read the analyst report on FITB

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