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Why is Earnings Beat Less Likely for State Street (STT) in Q2?

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State Street (STT - Free Report) is slated to announce second-quarter 2022 results on Jul 15, before market open. While the company’s revenues in the quarter are expected to have increased on a year-over-year basis, 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, nil provisions, growth in fee income and a decline in 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, delivering an earnings surprise of 6.9%, 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 second-quarter earnings is pegged at $1.83 per share. The consensus estimate has been revised 2.1% lower over the past 30 days. The figure indicates a decline of 7.1% from the year-ago quarter’s reported number.

The consensus estimate of $3.04 billion for second-quarter sales suggests a marginal year-over-year rise.

Key Factors & Estimates for Q2

Net Interest Revenues (“NIR”): The Zacks Consensus Estimate for average interest-earning assets for the to-be-reported quarter is pegged at $265.5 billion, which suggests a rise of 2.9% from the previous quarter’s reported number.

Moreover, lending activities continued to improve in the quarter. In addition to loan growth, there was a rise in interest rates in the quarter. The Federal Reserve raised rates by 125 basis points in total in the quarter. The policy rate reached 1.5-1.75%, the highest level since just before the March 2020 pandemic. Thus, loan growth, coupled with higher rates, is expected to have positively impacted STT’s NIR in the quarter.

The Zacks Consensus Estimate for NIR (on a fully taxable-equivalent basis) of $557 million indicates a sequential rise of 8.8%.

Management projects second-quarter NII to increase 7-9% sequentially, driven by the expected Fed rate hikes, partially offset by the AOCI mitigating portfolio actions.

Fee Revenues: The consensus estimate for foreign exchange trading services revenues of $315 million suggests a sequential decline of 12.3%.

The consensus estimate for securities finance revenues of $108 million suggests a 12.5% rise from the previous quarter.

The consensus estimate for servicing fees of $1.34 billion indicates a 2.1% sequential fall, while the consensus estimate for management fees of $515 million implies a marginal decline.

Overall, for the June-end quarter, the Zacks Consensus Estimate for total fee revenues of $2.48 billion indicates a 3.7% decline from the previous quarter’s reported figure.

Management expects fee revenues to decline 2% on a sequential basis, with servicing fees up 1% and management fees rising 2-3%, assuming equity markets remain flat at the Mar 31 level and some downward normalization in foreign exchange trading revenues.

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 increase 2-3% on a sequential basis.

What the Zacks Model Reveals

According to our proven model, the chances of State Street beating the Zacks Consensus Estimate for earnings this time are low. 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 see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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 -2.29%.

Zacks Rank: The company currently carries a Zacks Rank #5 (Strong Sell).

Stocks Worth a Look

A couple of finance stocks that 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 Truist Financial (TFC - Free Report) and Associated Banc-Corp (ASB - Free Report) .

The Earnings ESP for Truist Financial is +1.38% and it carries a Zacks Rank #3 at present. The company is slated to report second-quarter 2022 results on Jul 19.

Associated Banc-Corp is scheduled to release second-quarter 2022 earnings on Jul 21. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +1.14%.

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

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