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What's in the Cards for State Street's (STT) Q1 Earnings?

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State Street (STT - Free Report) is scheduled to report first-quarter 2021 results on Apr 16, before market open. The company’s 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 has an impressive earnings surprise history. The company’s earnings exceeded the Zacks Consensus Estimate in each of the trailing four quarters, the surprise being 12.20%, on average.

Factors to Impact Q1 Performance

Net Interest Revenues: The Zacks Consensus Estimate for average interest earning assets is pegged at $267.68 billion for the to-be-reported quarter, which suggests a 12.4% rise from the quarter-ago reported number.

Nonetheless, despite the resumption in business activities, overall loan demand was soft during the first quarter. Thus, State Street’s interest income might have received lesser support from this avenue during the quarter in discussion.

While low interest-rate environment might have hurt the company’s net interest margin, steepening of the yield curve (the difference between short and long-term interest rates) is anticipated to have offered some support.

The consensus estimate for NIR (on a fully taxable-equivalent basis) of $474 million for the first quarter indicates a 5.8% sequential fall.

Management estimates NIR to be down nearly 68% sequentially due to the prevalent impact of lower rates and day count.

Fee Revenues: During the first quarter, foreign exchange (FX) trading volatility was down, while FX trading volumes were up. The consensus estimate for the same indicates a quarter-on-quarter fall of 9.6% to $293 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 during the quarter. The Zacks Consensus Estimate for the same of $86 million suggests a 2.2% fall from the previous quarter.

Continued strength in equity markets, driven by a spike in volatility and higher client activities, is likely to have boosted the company’s servicing and management fees in the to-be-reported quarter. The consensus estimate for servicing fees of $1.33 billion calls for a 1.7% sequential rise. Likewise, the consensus estimate for management fees of $505 million suggests a 2.5% improvement.

Overall, for the March-end quarter, the Zacks Consensus Estimate for total fee revenues of $2.34 billion indicates a 2.9% fall from the prior quarter.

Management projects fee revenues to be down year over year in low single digits, mostly likely down 4%, given headwinds such as the outsized FX trading revenues last year due to volatility in the early days of the pandemic in March 2020.

Expenses: Due to higher information systems and communication expenses as well as acquisition and restructuring costs, the company has been witnessing a steady 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 during the January-March period.

Management expects expenses to be consistent with the seasonal costs usually occurring in the first quarter. Excluding notable items, overall expenses are expected to be flat to down 1% and currency translation will likely be a 1% headwind to this projection.

What the Zacks Model Reveals

Our proven model predicts that State Street has 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 this time around.

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 +0.40%.

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

State Street Corporation Price and EPS Surprise

State Street Corporation Price and EPS Surprise

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

The Zacks Consensus Estimate of $1.34 for State Street’s earnings has moved 1.5% upward over the past seven days. Nonetheless, the figure indicates a fall of 19.8% from the year-ago reported number. Also, the consensus estimate for sales is pegged at $2.88 billion, indicating a 6% decline.

Other Stocks That Warrant a Look

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

Charles Schwab (SCHW - Free Report) is scheduled to report first-quarter 2021 results on Apr 15. The company has an Earnings ESP of +2.04 % and currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Citigroup (C - Free Report) is slated to report quarterly results on Apr 15. The company has an Earnings ESP of +3.14% and holds a Zacks Rank of 3, at present.

The Earnings ESP for KeyCorp (KEY - Free Report) is +0.03%. This Zacks #3 Ranked company is scheduled to report quarterly numbers on Apr 20.

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