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Will Fee Income Aid Northern Trust's (NTRS) Q4 Earnings?

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Northern Trust Corporation’s (NTRS - Free Report) fourth-quarter 2020 results, scheduled for a Jan 21 release, will likely reflect year-over-year declines in revenues and earnings.

Northern Trust uses a lag effect to calculate its corporate custody and investment management fees, i.e. the computations are based on the prior-quarter end valuations. Since the performance of equity markets was strong during the third quarter of 2020, the bank is likely to have registered increases in custody, servicing and management fees during the fourth.

Notably, the company provides majority of its asset-management services through the C&IS unit, which generates more than 50% of the total revenues. An increase in revenues in this segment is anticipated to have driven the bank’s overall top line during the quarter in discussion.

Per the Zacks Consensus Estimate, the C&I segment’s custody and fund administration fees will likely reflect 4.3% year-over-year growth to $414 million. Also, investment management revenues are estimated to have climbed 12.9% on a year-over-year basis. Yet, securities lending revenues are projected to have been up 10.9% year on year.

Therefore, with the impressive performance of its components, total C&I trust, investment and other servicing fees are likely to have increased 5.5% year over year to $598 million.

Here are the other factors that might have influenced the company’s quarterly performance:

Low Net Interest Income (NII): The overall lending scenario was soft during the October-December period, with commercial real estate and consumer loan portfolios having offered some support. Conversely, weakness in revolving home equity, and commercial and industrial activities are expected to have offset growth. Low deposit costs might have been an offsetting factor for margins.

With the interest rates near-zero level, Northern Trust’s net interest margin and NII are likely to have been adversely impacted as well.

The Zacks Consensus Estimate of $131.6 million for the fourth-quarter average interest earning assets indicates a 22.8% year-over-year improvement, while the NII is projected to decline 23.7% to $329 million.

Soft Foreign-Exchange Trading Revenues: Given the flat to low on an average (though trended higher toward the tail end of November), foreign-exchange (FX) trading volatility in the developing and emerging markets, along with the mixed volumes during the December-end quarter as compared with the prior quarter, the company’s revenues from FX trading might have registered a rise. Moreover, the Zacks Consensus Estimate for fourth-quarter income of $64 million calls for a 3.2% sequential increase.

Controlled Expenses: Northern Trust’s expenses in the quarter under review are anticipated to have been under control aided by its continued cost-saving initiatives.

Let’s have a look at what our quantitative model predicts:

Northern Trust doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing 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 Northern Trust is -1.45%.

Zacks Rank: Northern Trust currently carries a Zacks Rank of 3, which increases the predictive power of ESP. But we also need to have a positive ESP to be confident of a positive earnings surprise.

The bank’s activities in the to-be-reported quarter were adequate to win analysts’ confidence. As a result, its Zacks Consensus Estimate for quarterly earnings has been revised upward in the last seven days. Nonetheless, earnings are expected to have recorded a year-over-year decline of 10.6%. Also, the Zacks Consensus Estimate of $1.5 billion for sales suggests a 3.2% decrease from the prior-year quarter.

 

Northern Trust Corporation Price and EPS Surprise Northern Trust Corporation Price and EPS Surprise

Northern Trust Corporation price-eps-surprise | Northern Trust Corporation Quote

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Here are a few bank stocks that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this time around:

The Earnings ESP for CullenFrost Bankers, Inc. (CFR - Free Report) is +4.5% and the stock sports a Zacks Rank of 1 (Strong Buy), at present. The company is slated to report fourth-quarter 2020 numbers on Jan 28.You can see the complete list of today’s Zacks #1 Rank stocks here.

Huntington Bancshares Incorporated (HBAN - Free Report) is set to release earnings figures on Jan 22. The company, which flaunts a Zacks Rank of 1 at present, has an Earnings ESP of +3.39%.

U.S. Bancorp (USB - Free Report) is scheduled to announce quarterly results on Jan 20. The company has an Earnings ESP of +0.44% and currently carries a Zacks Rank of 3.

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