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Market Update

Earnings on Tap: J.P. Morgan Chase and Wells Fargo

Two of the country's leading banks are looking ahead to report strong performance in the second quarter.

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 J.P. Morgan Chase (JPM) and  Wells Fargo (WFC) will likely set the tone for the financial sector's earnings season when they report their latest numbers before the markets open Friday.

According to Wall Street estimates, second-quarter earnings are expected to come in higher for both banks. 

For J.P. Morgan, analysts are expecting an 18% jump in profits this quarter on account of strong growth in its mortgage business. The consensus estimate is calling for net income of $5.47 billion, or $1.44 per share, compared with $1.21 per diluted share, or net income of $4.63 billion, reported in the corresponding period a year ago.

The country's largest bank by assets had reported record net income of $6.5 billion for the first quarter, with earnings per share being a record $1.59. Revenue for the quarter was more than $25 billion, compared with $26.8 billion in the prior year.

The banking giant has been posting double-digit earnings growth for the past three consecutive quarters, and it will be interesting to see if J.P. Morgan can keep up its momentum.

The stock has gained nearly 25% on a year-to-date basis and is trading near our fair value estimate.

According to Morningstar analyst Jim Sinegal, J.P. Morgan has achieved a reasonable level of profitability in recent years, despite a number of headwinds. Earnings could improve substantially from current levels once the firm is truly firing on all cylinders, adds Sinegal.

As for Wells Fargo, earnings are expected to come in at $0.93 per share compared with $0.82 in the year-ago period.

The company has reported increased earnings per share for the past 13 consecutive quarters, helping the stock on its upward trajectory. This year, the stock has already gained more than 20% year to date and currently trades around Morningstar’s fair value estimate, just a little shy of its all-time high of $44.69.

Sinegal wrote in a recent stock analyst note that despite some continuing issues, Wells Fargo's competitive advantages are intact, and if the management's expense-reduction program is successful, the bank's combination of low funding costs and efficient operations will be that much more difficult for peers to match.

Gazala Parveen does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.