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Is a Beat in Store for State Street (STT) in Q2 Earnings?

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State Street (STT - Free Report) is scheduled to report second-quarter 2021 results on Jul 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 gained from provision benefits and rise in fee income, partly offset by a fall in net interest revenues (NIR) and higher expenses.

State Street has an impressive earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the surprise being 8.70%, 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

The Zacks Consensus Estimate of $1.76 for State Street’s earnings for the to-be-reported quarter has moved 1.1% upward over the past seven days. The figure, however, indicates a fall of 6.4% from the year-ago reported number. The consensus estimate for sales is pegged at $2.94 billion, indicating a modest decline.

Factors at Play

Net Interest Revenues: The Zacks Consensus Estimate for average interest earning assets is pegged at $256.9 billion for the to-be-reported quarter, which suggests nearly 1% rise from the quarter-ago reported number.

Despite the economy re-opening and witnessing substantial growth, overall demand for loans was subdued during the second quarter. State Street’s interest income might have received lesser support from this avenue during the quarter.

Low interest rate environment and flattening of the yield curve are expected to have hurt the company’s net interest margin in the to-be-reported quarter.

Management estimates NIR to be in the range of $460-$465 million in the quarter. The consensus estimate for NIR (on a fully taxable-equivalent basis) of $463 million for the second quarter indicates a 1.7% sequential fall.

Fee Revenues: During the second quarter, foreign exchange (FX) trading volatility as well as FX trading volumes were down on average. The consensus estimate for foreign exchange trading services indicates a quarter-on-quarter fall of 9.2% to $314 million.

Given the narrowing spread between the three-month LIBOR and the Fed funds rate, securities finance revenues are likely to have been positively impacted during the quarter. The Zacks Consensus Estimate for the same of $101 million suggests a 2% rise from the previous quarter.

Driven by higher client activities, strength in equity markets 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 $1.39 billion indicates a 1% sequential rise, while the consensus estimate for management fees of $475 million implies a 3.7% fall.

Per management, servicing fees are projected to be up 10% from the prior-year quarter.

Overall, for the June quarter, the Zacks Consensus Estimate for total fee revenues of $2.47 billion indicates a slight fall from the prior quarter.

Driven by better-than-expected equity market appreciation during the quarter, management anticipates fee revenues to rise 4-5% year over year.

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. The same trend is likely to have persisted this time as well.

Management expects expenses to rise 3% from the prior-year quarter level.

What the Zacks Model Reveals

Our proven model predicts an earnings beat for State Street this time around. This is because it 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.

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 +1.11%.

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

Other Banks Worth 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.

BNY Mellon (BK - Free Report) is scheduled to report second-quarter 2021 results on Jul 15. The company has an Earnings ESP of +1.84% and currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

People's United (PBCT - Free Report) is slated to report quarterly results on Jul 15. The company has an Earnings ESP of +11.01% and holds a Zacks Rank of 3, at present.

The Earnings ESP for KeyCorp (KEY - Free Report) is +0.26%. This Zacks #3 Ranked company is scheduled to report quarterly numbers on Jul 20.

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