JPMorgan Partners With Cuscal

 

Cuscal, an Australia-based business-to-business provider of wholesale banking and transactional banking services, has entered into a partnership with JPMorgan Chase & Co. (JPM 41.51 -0.44 -1.05%) to provide a new platform to facilitate international payment transfers to its customers. Cuscal took this action as part of its strategy to control spending.
 
With this new platform, customers of Cuscal (including the majority of Australia's credit unions) will be able to transfer international payments as a retail banking service with low transaction fees.
 
Both the parties worked together to develop a unique solution for the customers of Cuscal. The service became operational in April 2010 and is expected to clear 70,000 inbound payments in the first year of operation.
 
The transaction between JPMorgan and Cuscal under the partnership will be in Australian dollars. This will help Cuscal integrate the transaction with its existing general ledger and banking platforms. As a result, Cuscal will experience reduced development cost.
 
Our long-term recommendation for JPMorgan is Neutral.
 
Earnings Recap
 
JPMorgan's first quarter earnings came in at 74 cents per share, substantially ahead of the Zacks Consensus Estimate of 63 cents. This also compares favorably with earnings of 40 cents in the prior-year quarter.
 
Better-than-expected earnings of JPMorgan were primarily aided by higher revenues as a result of continued strong performance of the Investment Bank, chiefly in Fixed Income Markets. All the other segments except Consumer Lending and Card Services also delivered solid results during the quarter. However, high levels of consumer credit portfolio losses and increased non-interest expense were the primary factors, which negatively impacted the results.
 
Estimate Revision Trend
 
Following better-than-expected first quarter results, significant positive estimate revisions were observed for JPMorgan shares. Over the last 30 days, 15 of the 20 analysts covering JPMorgan have increased estimates for the second quarter of 2010, while only 1 downward revision was witnessed. For 2010, 16 of the 24 analysts covering the stock have increased their estimates, while no downward revision was observed.
 
Currently, the Zacks Consensus Estimate for the second quarter is earnings of 83 cents per share, which would be up by 195.7% from the year-ago quarter. Also, the full year estimate of $3.27 would be up by about 46.0% from 2009.
 
However, the higher number of upward estimate revisions for the second quarter and full year 2010 indicate a likelihood of upward 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 all positive surprises. The average remained positive at 117.7%. This implies that JPMorgan has surpassed the Zacks Consensus Estimate by 117.7% over that period.
 
While we anticipate continued synergies from JPMorgan's diversification and strong capital position, increasing provisions and a pressured credit quality will drag down future earnings.