JPMorgan Steps into LNG Market - Analyst Blog

Last week, JPMorgan Chase & Co. (JPM) and Cheniere Energy, Inc. (LNG) entered into a multi-year agreement to jointly exploit their expertise in the global liquefied natural gas (LNG) market.

The deal provides capacity rights for JPMorgan at Sabine Pass in Louisiana, the largest LNG terminal in North America, while Cheniere will benefit from J.P. Morgan’s financial expertise and client relationships.

The details of the deal however, have not been disclosed.

Estimate Revision Trend

Over the last 30 days, 5 of the 20 analysts covering JPMorgan have lowered estimates for the first quarter of 2010, while 2 upward revisions were witnessed. For 2010, 6 of the 24 analysts covering the stock have lowered their estimates, while only 1 upward revision was observed.

Currently, the Zacks Consensus Estimate for the first quarter is earnings of 63 cents per share, which would be up by 58.4% from the year-ago quarter. Also, the full year estimate of $3.03 would be up by about 35.2% from 2009.

However, the higher number of downward estimate revisions for the first quarter and full year 2010 indicate a likelihood of downward pressure on the performance of the stock in the near term.

With respect to earnings surprises, the stock has been steady over the last four quarters, with positive surprises. The average remained positive at 120.6%. This implies that JPMorgan has surpassed the Zacks Consensus Estimate by 120.6% over that period.

Earnings Recap

JPMorgan’s fourth quarter earnings came in at 74 cents per share, substantially ahead of the Zacks Consensus Estimate of 61 cents. This also compares favorably with earnings of 6 cents in the prior-year quarter.

Better-than-expected results of JPMorgan were primarily aided by continued strong performance of the Investment Bank. All the other segments except Consumer Lending and Card Services also delivered solid results during the quarter. However, high levels of consumer credit costs and increased provision for credit losses were the primary factors, which negatively impacted the results.

We anticipate continued synergies from JPMorgan’s diversification and strong capital position, but increasing provisions and rising consumer credit costs will drag upcoming results. However, we are impressed to see some improvement in credit quality during the reported quarter.