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What's in Store for Northern Trust (NTRS) in Q1 Earnings?

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Northern Trust Corporation (NTRS - Free Report) is scheduled to report first-quarter 2017 results tomorrow before the opening bell.

The Chicago, IL-based company’s fourth-quarter 2016 earnings lagged the Zacks Consensus Estimate owing to a rise in operating expenses. However, this was partly offset by improved revenues.

Notably, this dismal performance resulted in a deterioration of the company’s share price.  In the first quarter, the stock lost around 2.5%. Also, the Zacks Consensus Estimate declined a penny over the last 30 days.

Nonetheless, Northern Trust has a decent earnings surprise history, as evident from the chart below:

Earnings Whispers

Will the upcoming earnings release help Northern Trust’s stock in reversing the trend? This depends largely on whether the firm is able to post a beat in the to-be-reported quarter.

However, based on our quantitative model, we cannot conclusively predict an earnings beat. Here’s why:

Northern Trust doesn’t have the right combination of the two key ingredients – a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) – for increasing its chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: The Earnings ESP for Northern Trust is 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate stand at $1.07.

Zacks Rank: Northern Trust’s Zacks Rank #2 increases the predictive power of ESP. However, we need a positive ESP to be confident of an earnings surprise.

Nonetheless, Northern Trust’s first-quarter estimates of $1.07 reflect a rise of 6.3% year over year.

Factors to Influence Q1 Results

Trust Revenues to Witness Improvement: The equity markets across the globe showed a decent improvement in the first quarter. Both the MSCI EAFE Index (measuring international equity performance) and the S&P 500 Index gained.

Notably, Northern Trust uses a lag effect to calculate its corporate custody and investment management fees, i.e. the computations are based on prior quarter-end valuations. Since the performance of equity markets were relatively decent in the fourth quarter, the company should be able to record growth in custody, servicing and management fees.

Modest Rise in Net Interest Income (NII): Given the effect of rise in interest rates, Northern Trust should have recorded an increase in NII. However, a slowdown in loan growth during the quarter will have a marginal adverse impact on interest income.

Foreign Exchange Trading Revenues to Rise: Given the increase in foreign exchange (“FX”) trading volatility, as well as volumes in the first quarter, the company’s revenues from FX trading should have improved during the quarter.

Marginal Increase in Expenses: Despite some cost saving initiatives, Northern Trust’s continued investments in new business activities and higher regulatory and compliance costs may lead to a slight rise in expenses.

Stocks that Warrant a Look

Here are some finance stocks worth considering, as they have the right combination of elements to post an earnings beat in their upcoming releases.

Prosperity Bancshares, Inc. (PB - Free Report) has an Earnings ESP of +1.02% and it carries a Zacks Rank #3. The company is slated to release results on Apr 26.

SVB Financial Group is scheduled to announce results on Apr 27. The company has an Earnings ESP of +0.54% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Waddell & Reed Financial, Inc. has an Earnings ESP of +2.50% and a Zacks Rank #3. It is scheduled to report results on May 2.

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