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Is an Earnings Beat in Store for State Street (STT) in Q1?

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State Street (STT - Free Report) is slated to announce first-quarter 2022 results on Apr 14, before market open. While the company’s revenues in the quarter are expected to have increased on a year-over-year basis, its earnings are likely to have declined.

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 fee income. However, a 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, delivering an earnings surprise of 7.3%, 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 first-quarter earnings is pegged at $1.46 per share. The estimate has been revised 2.1% upward over the past 30 days. However, the figure indicates a marginal decline from the year-ago quarter’s reported number.

The consensus estimate of $3.08 billion for first-quarter sales suggests a year-over-year rise of 4.4%.

Key Factors & Estimates for Q1

Net Interest Revenues (“NIR”): The Zacks Consensus Estimate for average interest-earning assets for the to-be-reported quarter is pegged at $265 billion, which suggests a marginal rise from the previous quarter’s reported number.

While interest rates continued to remain low in the first quarter, there was a hike in the same in mid March. Although the actual impact of the rate hike will not be seen much in the to-be-reported quarter, it is expected to slightly benefit interest income. Moreover, supported by the overall growth in loans, STT’s NIR is expected to have improved in the quarter. The Zacks Consensus Estimate for NIR (on a fully taxable-equivalent basis) of $498 million indicates a sequential rise of 2.3%.

Management projects net interest income to be up 3-4% year over year and flat sequentially.

Given the improvement in short-end rates and the anticipated rate hike in March, the company expects money market fee waivers on management fees to be $15 million in the quarter.

Fee Revenues: Foreign exchange volumes and volatility increased sequentially in the first quarter. Thus, the related fees are likely to have been positively impacted. The consensus estimate for foreign exchange trading services revenues of $326 million suggests a sequential rise of 8.7%.

Likewise, the consensus estimate for securities finance revenues of $109 million suggests a 6.9% rise from the previous quarter.

The consensus estimate for servicing fees of $1.45 billion indicates a 4.4% sequential rise, while the consensus estimate for management fees of $531 million implies a marginal increase.

Overall, for the March-end quarter, the Zacks Consensus Estimate for total fee revenues of $2.59 billion indicates a 3.2% rise from the previous quarter’s reported figure.

Management expects fee revenues to grow 2-3% year over year, given the continued business momentum, with servicing fees up 1-2% and management fees up 8-9%.

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 trend is likely to have persisted this time.

Management expects expenses (excluding notable items) to be up 1.5-2% on a year-over-year basis and include a seasonal compensation expense.

What the Zacks Model Reveals

Our proven model predicts an earnings beat for State Street this time around. This is because the company 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 +0.97%.

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

Other Stocks Worth a Look

A couple of other finance stocks that you may want to consider, as these too 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) and Associated BancCorp (ASB - Free Report) .

The Earnings ESP for Commerce Bancshares is +6.01% and it carries a Zacks Rank #2 (Buy) at present.

CBSH is scheduled to report quarterly numbers on Apr 19. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Associated BancCorp is slated to report quarterly earnings on Apr 21.

ASB, which carries a Zacks Rank of 2 at present, has an Earnings ESP of +3.72%.

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


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