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Why is Earnings Beat Less Likely for State Street (STT) in Q4?

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State Street (STT - Free Report) is slated to announce fourth-quarter and 2021 results on Jan 19, before market open. The company’s revenues and earnings in the quarter are expected to have increased on a year-over-year basis.

In the last reported quarter, STT’s earnings surpassed the Zacks Consensus Estimate. Results benefited from new investment servicing wins, provision benefits and growth in revenues. However, a marginal rise in expenses and lower interest rates were headwinds.

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 8.1%, 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 for State Street’s fourth-quarter earnings is pegged at $1.92 per share. The consensus estimate has been revised marginally upward over the past seven days. Moreover, the figure indicates growth of 13.6% from the year-ago quarter’s reported number.

The consensus estimate for fourth-quarter sales of $3.01 billion suggests a year-over-year rise of 3.1%.

Key Factors & Estimates for Q4

Net Interest Revenues (NIR): The Zacks Consensus Estimate for average interest-earning assets for the to-be-reported quarter is pegged at $252.9 billion, which suggests a sequential rise of 11.9%.

While overall growth in loan balances was impressive in the fourth quarter, interest rates remained low. Thus, despite loan growth, STT’s NIR is not expected to have improved much. The Zacks Consensus Estimate for NIR (on a fully taxable-equivalent basis) of $489 million indicates a marginal sequential decline.

Management projected a small rebound in the short end-market rates and some movement in the longer end of the curve to drive fourth-quarter net interest income, which is projected to be $475-$490 million. In the third quarter of 2021, the company reported net interest income of $487 million.

Fee Revenues: While the fourth quarter witnessed an overall sequential increase in foreign exchange (FX) trading volatility and volumes, the related revenues are not expected to have improved. The consensus estimate for foreign exchange trading services revenues of $270 million suggests a sequential decline of 3.2%.

Likewise, the consensus estimate for securities finance revenues of $94 million suggests an 11.3% decline from the previous quarter.

The consensus estimate for servicing fees of $1.42 billion indicates a 2.1% sequential rise, while the consensus estimate for management fees of $525 million implies a marginal decline.

Overall, for the December-end quarter, the Zacks Consensus Estimate for total fee revenues of $2.51 billion indicates a marginal rise from the previous quarter’s reported figure.

Based on the expectations of an improvement in short-end rates, management expects money market fee waivers of $20 million for the fourth quarter.

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 (excluding notable items) to be up sequentially.

Management Expectations for 2021

On the assumption that short-term interest rates will align with the current forward rate curve and global equity markets will remain in line with the current levels, management expects net interest income to decline in the double-digit range.

Fee revenues are expected to be up 5%, with servicing fees anticipated to be up 7.5-8.5%.

Excluding notable items, overall expenses are expected to be up 1-1.25%.

What the Zacks Model Reveals

Our proven model does not predict an earnings beat for State Street this time around. This is because the company does not 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 -0.30%.

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

Stocks Worth a Look

A few finance stocks, which 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, are Commerce Bancshares, Inc. (CBSH - Free Report) , BankUnited, Inc. (BKU - Free Report) and Ally Financial Inc. (ALLY - Free Report) .

The Earnings ESP for Commerce Bancshares is +1.24% and it carries a Zacks Rank of 3 at present. CBSH is scheduled to report quarterly numbers on Jan 19.

BankUnited is slated to report quarterly results on Jan 20. BKU currently has an Earnings ESP of +42.98% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ally Financial is slated to report quarterly earnings on Jan 21. ALLY, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +2.55%.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.