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State Street (STT) to Report Q4 Earnings: What's in Store?

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State Street (STT - Free Report) is scheduled to report fourth-quarter and 2020 results on Jan 19, before market open. Its quarterly revenues and earnings are expected to have declined on a year-over-year basis.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Results benefited from lower expenses and rise in fee income, partly offset by a fall in net interest revenues (NIR).

State Street boasts an impressive earnings surprise history. The company’s earnings surpassed the Zacks Consensus Estimate in each the trailing four quarters, with the positive surprise being 14.41%, on average.

State Street Corporation Price and EPS Surprise State Street Corporation Price and EPS Surprise

State Street Corporation price-eps-surprise | State Street Corporation Quote

Key Factors to Impact Q4 Results

Net Interest Revenues: The Zacks Consensus Estimate for the company’s average interest earning assets is pegged at $262.53 billion for the to-be-reported quarter, which suggests a 16.3% rise from the quarter-ago reported number. Nonetheless, given the economic slowdown and pandemic-related scare, the overall demand for loans was muted during the quarter. This, along with near-zero interest rates, is likely to have hurt State Street’s NIR in the to-be-reported quarter.

The consensus estimate for NIR (on a fully taxable-equivalent basis) of $480 million for the fourth quarter indicates a slight sequential fall.

For 2020, management expects NIR to decline 15%, given the impact of continued lower long end rates on the investment portfolio.

Fee Revenues: During the fourth quarter, foreign exchange (FX) trading volatility was flat to low, while FX volumes were mixed. Thus, the consensus estimate for the same indicates a sequential rise of 3.1% to $303 million.

Moreover, given the narrowing spread between the three-month LIBOR and Fed funds rate, securities finance revenues are likely to have been positively impacted in the quarter. The Zacks Consensus Estimate for the same of $85 million suggests 1.2% growth from the prior quarter’s reported figure.

Driven by strong equity market performance, servicing and management fees are expected to have been positively impacted in the to-be-reported quarter. The consensus estimate for servicing fees of $1.32 billion indicates a 1.7% sequential rise. Likewise, the consensus estimate for management fees of $467 million suggests a 2.6% improvement.

Overall, for the fourth quarter, the Zacks Consensus estimate for total fee revenues of $2.09 billion indicates a 9.3% fall from the prior quarter.

For 2020, management projects fee revenues to increase 2.5-3%, supported by a 2% year-over-year rise in servicing fees. Further, the impact of money market fee waivers (net of distribution expenses) is expected to be $10-$15 million.

Expenses: Due to higher information systems and communications expenses as well as acquisition and restructuring costs, the company has been witnessing a persistent rise in expenses over the past few quarters. However, driven by the success of its expense-saving program, State Street’s operating expenses are likely to have remained manageable in the fourth quarter.

For 2020, management anticipates overall expenses (excluding notable items) to fall 2%.

What the Zacks Model Reveals

Our proven model does not conclusively predict an earnings beat for State Street this season. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for State Street is 0.00%.

Zacks Rank: The company currently carries a Zacks Rank #3.

Q4 Earnings & Sales Expectations

The Zacks Consensus Estimate for State Street’s earnings of $1.57 has remained unchanged over the past seven days. The figure indicates a fall of 20.7% from the year-ago reported number.

The consensus estimate for sales is pegged at $2.83 billion, indicating a 7.1% year-over-year decline.

Stocks That Warrant a Look

Here are some finance stocks that you may want to consider as these have the right combination of elements to post an earnings beat in their upcoming releases, per our model.

The Earnings ESP for Bank of America (BAC - Free Report) is +2.89% and the company carries a Zacks Rank of 3, at present. The company is slated to report quarterly results on Jan 19. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Truist Financial (TFC - Free Report) is set to release earnings figures on Jan 21. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +3.18%.

The Earnings ESP for KeyCorp (KEY - Free Report) is +1.80% and the company carries a Zacks Rank #3, currently. It is scheduled to report quarterly numbers on Jan 21.

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