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NIR to Aid State Street (STT) Q3 Earnings Amid Fee Income Woes
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State Street (STT - Free Report) is slated to announce third-quarter 2022 results on Oct 18, 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, growth in net interest revenues (NIR) and a decline in expenses. Lower fee revenues and higher provisions acted as 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 6.82%, on average.
The Zacks Consensus Estimate for State Street’s third-quarter earnings is pegged at $1.80 per share. The consensus estimate has been revised marginally upward over the past seven days. The figure indicates a decline of 10% from the year-ago quarter’s reported number. Our estimate for earnings is $1.77, indicating a 9.6% fall.
The consensus estimate of $3.01 billion for sales suggests an almost 1% year-over-year rise. Our estimate for sales is $3 billion, reflecting an increase of 0.5%.
Major Factors & Estimates for Q3
Net Interest Revenues: The Zacks Consensus Estimate for average interest-earning assets for the to-be-reported quarter is pegged at $255.1 billion, which suggests a rise of 1.5% from the previous quarter’s reported number. Our estimate for the metric is $246.5 billion.
Moreover, lending activities continued at a decent pace in the third quarter. In addition to loan growth, there was a rise in interest rates in the quarter. The Federal Reserve raised rates by 150 basis points in total during the quarter. The policy rate now stands at the 3.0-3.25% range, the highest since 2008. 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 or FTE basis) of $637 million indicates a sequential rise of 8.5%. We project NIR on FTE basis to grow 6% to $622 million.
Management projects NII to increase 5-9% sequentially, driven by the tailwind from the rate hikes. The outlook includes the expectation for some initial deposit outflow and rotation in the third quarter.
Fee Revenues: Significant volatility in the foreign exchange (FX) markets due to serious macroeconomic and geopolitical concerns is likely to have hurt State Street’s FX trading services income. The consensus estimate for the same is $315 million, suggesting a sequential decline of 4.8%. Our estimate for the metric is pegged at $315.5 million.
The consensus estimate for securities finance revenues of $113 million suggests a 5.6% rise from the previous quarter.
The consensus estimate for servicing fees of $1.26 billion indicates a 3.2% sequential fall, while the consensus estimate for management fees of $472 million implies a 3.7% decline. Management expects both servicing fees and management fees to be down 4% quarter over quarter due to weaker market levels. Our estimates for servicing fees and management fees are $1.24 billion and $468.7 million, respectively.
Overall, the Zacks Consensus Estimate for total fee revenues of $2.35 billion indicates 1% decline from the previous quarter’s reported figure. We project the metric to fall 2.2% to $2.32 billion.
Management expects total fee revenues to decline 2% on a sequential basis.
Expenses: Due to higher information systems and communication expenses, as well as acquisition and restructuring costs, STT has been witnessing a steady rise in expenses over the past few quarters. The trend is likely to have persisted this time as well.
Management expects expenses (excluding notable items) to increase just under 1% on a sequential basis, owing to the inflationary pressures on wages as the company continues to target productivity initiatives and execute against its strategy with a deep focus on expense discipline.
We anticipate total non-interest expenses to increase 2.6% to $2.16 billion.
What the Zacks Model Reveals
Per our proven model, the chances of an earnings beat for State Street 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 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.
Banks Worth a Look
Here are a couple of bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
The Earnings ESP for Morgan Stanley (MS - Free Report) is +0.59% and it carries a Zacks Rank #3, at present. The company is slated to report third-quarter 2022 results on Oct 14.
Over the past 30 days, MS’ Zacks Consensus Estimate for quarterly earnings has moved 3.2% lower.
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NIR to Aid State Street (STT) Q3 Earnings Amid Fee Income Woes
State Street (STT - Free Report) is slated to announce third-quarter 2022 results on Oct 18, 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, growth in net interest revenues (NIR) and a decline in expenses. Lower fee revenues and higher provisions acted as 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 6.82%, on average.
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 third-quarter earnings is pegged at $1.80 per share. The consensus estimate has been revised marginally upward over the past seven days. The figure indicates a decline of 10% from the year-ago quarter’s reported number. Our estimate for earnings is $1.77, indicating a 9.6% fall.
The consensus estimate of $3.01 billion for sales suggests an almost 1% year-over-year rise. Our estimate for sales is $3 billion, reflecting an increase of 0.5%.
Major Factors & Estimates for Q3
Net Interest Revenues: The Zacks Consensus Estimate for average interest-earning assets for the to-be-reported quarter is pegged at $255.1 billion, which suggests a rise of 1.5% from the previous quarter’s reported number. Our estimate for the metric is $246.5 billion.
Moreover, lending activities continued at a decent pace in the third quarter. In addition to loan growth, there was a rise in interest rates in the quarter. The Federal Reserve raised rates by 150 basis points in total during the quarter. The policy rate now stands at the 3.0-3.25% range, the highest since 2008. 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 or FTE basis) of $637 million indicates a sequential rise of 8.5%. We project NIR on FTE basis to grow 6% to $622 million.
Management projects NII to increase 5-9% sequentially, driven by the tailwind from the rate hikes. The outlook includes the expectation for some initial deposit outflow and rotation in the third quarter.
Fee Revenues: Significant volatility in the foreign exchange (FX) markets due to serious macroeconomic and geopolitical concerns is likely to have hurt State Street’s FX trading services income. The consensus estimate for the same is $315 million, suggesting a sequential decline of 4.8%. Our estimate for the metric is pegged at $315.5 million.
The consensus estimate for securities finance revenues of $113 million suggests a 5.6% rise from the previous quarter.
The consensus estimate for servicing fees of $1.26 billion indicates a 3.2% sequential fall, while the consensus estimate for management fees of $472 million implies a 3.7% decline. Management expects both servicing fees and management fees to be down 4% quarter over quarter due to weaker market levels. Our estimates for servicing fees and management fees are $1.24 billion and $468.7 million, respectively.
Overall, the Zacks Consensus Estimate for total fee revenues of $2.35 billion indicates 1% decline from the previous quarter’s reported figure. We project the metric to fall 2.2% to $2.32 billion.
Management expects total fee revenues to decline 2% on a sequential basis.
Expenses: Due to higher information systems and communication expenses, as well as acquisition and restructuring costs, STT has been witnessing a steady rise in expenses over the past few quarters. The trend is likely to have persisted this time as well.
Management expects expenses (excluding notable items) to increase just under 1% on a sequential basis, owing to the inflationary pressures on wages as the company continues to target productivity initiatives and execute against its strategy with a deep focus on expense discipline.
We anticipate total non-interest expenses to increase 2.6% to $2.16 billion.
What the Zacks Model Reveals
Per our proven model, the chances of an earnings beat for State Street 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 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.
Banks Worth a Look
Here are a couple of bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
The Earnings ESP for Morgan Stanley (MS - Free Report) is +0.59% and it carries a Zacks Rank #3, at present. The company is slated to report third-quarter 2022 results on Oct 14.
Over the past 30 days, MS’ Zacks Consensus Estimate for quarterly earnings has moved 3.2% lower.
Associated Banc-Corp (ASB - Free Report) is scheduled to release third-quarter 2022 earnings on Oct 20. The company, which carries a Zacks Rank #2 (Buy) at present, has an Earnings ESP of +2.39%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
ASB’s quarterly earnings estimates have moved 1.7% upward over the past month.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.