Citing Wall Streets lower earnings expectations for J.P. Morgan Chase & Co., contrarian Michael L. Mayo of Prudential Securities Inc. upgraded it to hold from sell on Monday and raised his first-quarter earnings estimate 5 cents a share.
Mr. Mayo said that he had issued the sell rating because of his fellow analysts bullish estimates and the hit Morgan Chases shares would take if it failed to reach such high expectations. The consensus has come down recently, however, and he said the company should be able to meet the amended numbers when it reports today. 
But Mr. Mayo said that his outlook has fundamentally changed very little.
Were not more positive, because the firm still has structural issues, and our 2003 estimates are still 40 cents below consensus of $3.40, he wrote in his research note.
Since the beginning of the year the first-quarter consensus among equity analysts surveyed by Thomson Financial/First Call has fallen 26.4% and on Monday was 53 cents. The full-year consensus has slipped 18.8%, to $2.68.
But Mr. Mayos first-quarter estimate of 65 cents is now 22.6% above consensus. He expects solid advances in Morgan Chases fixed-income trading to be reflected in the report.
Reports from the major brokerage houses for fiscal quarters that ended Feb. 28 have shown fixed-income trading revenues up 23%.
Mr. Mayo predicted that Morgan Chases trading revenues will be about $1.7 billion, thanks in part to a 7% rise in overall debt issuance during the first quarter. And though revenues from bond trading probably did not reach the levels of the 2001 period, he said, they should be significantly ahead of the dismal fourth quarter and even beat the third and second quarters.
Several analysts who recently lowered their earnings outlook for Morgan Chase focused on the potential for weaker equity sales and trading revenues, as well as lower income from merger and acquisition activities.
But Mr. Mayo notes that the M&A and the equity businesses make up only 7% of Morgan Chases operating earnings. He says the company in not given enough credit for its fixed-income trading.
Andrew Collins of U.S. Bancorp Piper Jaffray, who has Morgan Chase on outperform, agreed with Mr. Mayo that high earning expectations have been a major risk for its stock. But he was not as optimistic about the prospects for fixed-income trading. Debt issuance was strong last quarter, he said, but derivative trading was not.
Mr. Collins said he expects the company to report trading revenues of about $1.15 billion, excluding net interest income, and operating earnings of 56 cents a share for the first quarter.
Morgan Chases was one of the few large-cap banking stocks that rose Monday, even though it failed to sustain its opening price of $35.50. It closed at $34.40, up 0.35%. The American Banker index of 50 banks fell 1.45% and Standard & Poors 500 index 0.76%.
