Big Banks Earnings Preview: Reports Could Give Clues on US Economy’s Health

• Tomorrow, the largest US banks will begin the second-quarter earnings season.
• Citigroup, JPMorgan and Wells Fargo will be the first to file reports.
• The results of these banks will provide insight into the overall health of the U.S. economy.
• Unlock AI-Powered Stock Picks for Under $8 a Month: Summer Sale Starts Now!

This week marks the start of the second-quarter earnings season, with major U.S. banks like JPMorgan Chase (NYSE:) , Wells Fargo (NYSE:) and Citigroup (NYSE:) set to report tomorrow. While the tech giants remain the market darlings, the results from these banks will provide key insights into the health of the U.S. economy and its future.

Analysts are bracing for a slowdown

Analysts are generally cautious about bank earnings, predicting little to no growth in the second quarter. That cautious outlook is partly because banks are setting aside more funds to cover potential loan defaults. The Federal Reserve’s latest stress test paints a picture of heightened risk, with projected loss rates on consumer and commercial loans reaching 8.1% in a downside scenario — down from 6.7% in 2023.

But surprises are always possible. Market sentiment is changing, and expectations are rising that the Fed will cut interest rates later this year. That raises a key question: How will lower rates affect banks’ earnings? Investors will be listening closely to banks’ comments on interest income to assess the potential impact.

Beyond Earnings: A Window on the Economy

The reports from the big banks will be more than just a numbers game. They will provide valuable information about the overall health of the U.S. economy. Investors will be looking for clues about loan demand, credit quality and the overall outlook for banks in the coming quarters.

This information will be key to navigating the market in the coming months. So let’s take a closer look at consensus forecasts, valuations, and analyst views for each of these major banks.

Citigroup: EPS Down, Revenue Down, Valuation at a Crossroads

For Citigroup, analysts are forecasting earnings per share of $1.39, down from the previous quarter ($1.75) and up a modest 1.4% year-over-year.

Source: InvestingPro

Revenue is expected to be $20.093 billion, down 3.38% year over year from $21.104 billion in the previous quarter.

In terms of valuation models, Citigroup’s InvestingPro Fair Value indicator, which synthesizes several established models, is $69.18, just 3.3% above Wednesday’s closing price.

Source: InvestingPro

What’s more, this valuation is all the more credible because 22 professional analysts following the stock have indicated an almost identical target of $69.60 on average.

JPMorgan: Is the current valuation fair?

For JPMorgan Chase & Co (NYSE:) , earnings per share are expected to be $4.51, slightly better than the prior-year quarter ($4.44) but down more than 5% from the same quarter a year earlier.

Source: InvestingPro

Sales are expected to increase 10.5% year-on-year to $45.66 billion, also up from $41.394 billion recorded in the previous quarter.

As for JPM’s share valuation, InvestingPro’s models estimate it at $213.58, which is just 2.8% above its current price.

Source: InvestingPro

This valuation is very close to the average share price that analysts expect to achieve at $212.60.

Wells Fargo: Does the stock have even more growth potential?

Finally, the consensus forecast for Wells Fargo & Company (NYSE: ) is for earnings per share of $1.28, which would represent a year-over-year increase of 2.4% and would be higher than the prior-year quarter’s earnings per share of $1.20. However, that is not the case for Wells Fargo & Company (NYSE: ).

Source: InvestingPro

This does not include revenue, which is expected to come in at $20.23 billion, down 1.4% year-over-year and below first-quarter sales of $20.86 billion.

In terms of the stock’s potential, we note that Wells Fargo’s InvestingPro Fair Value indicator of $74.16 suggests a 24.2% upside potential, which is significantly higher than the stocks of the other two banks discussed in this article.

Source: InvestingPro

It should be noted, however, that analysts seem to be less optimistic, setting an average price target of $64.16, which translates to an upside potential of 7.4% from Wednesday’s close.

Application

Market expectations for upcoming earnings from Citigroup, JPMorgan, and Wells Fargo are muted, but that low bar could yield some pleasant surprises. Shares of all three banks are up about 40% over the past 12 months. Analysts and models suggest that Citigroup and JPMorgan have hit their fair value, but Wells Fargo still has significant upside potential, according to InvestingPro Fair Value.

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Reservation: This article is for informational purposes only; it does not constitute an incentive, offer, opinion, advice or investment recommendation and is not intended to induce you to buy assets in any way. I would like to remind you that each type of asset is evaluated from many points of view and involves high risk. Therefore, each investment decision and the associated risk rests with the investor.