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Will BB&T (BBT) Be Able to Maintain Earnings Streak in Q3?


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BB&T Corporation (BBT - Analyst Report) is scheduled to announce third-quarter 2016 results on Oct 19, before the opening bell.

Last quarter, a substantial rise in interest income helped drive BB&T’s earnings, which outpaced the Zacks Consensus Estimate. However, higher operating expenses and a rise in provision for credit losses were the headwinds.

The earnings beat translated into improved share price movement. For the three months ended Sep 30, BB&T stock was up nearly 7%, indicating that the company’s business activities were cheered by the investors.

Notably, the analysts maintain a neutral stance regarding BB&T’s performance in the just concluded quarter. The Zacks Consensus Estimate of 70 cents remained stable over the last 30 days.

Nonetheless, BB&T boasts a decent earnings surprise history, as evident from the chart below:

BB&T CORP Price and EPS Surprise

BB&T CORP Price and EPS Surprise | BB&T CORP Quote

Factors to Impact Q3 Results

Will improvement in interest income support BB&T’s bottom line yet again? Or will it succumb to the challenging operating scenario this earnings season? Let’s check the factors that are expected to influence Q3 results:

Margin Under Pressure: Management expects GAAP net interest margin (NIM)  to decline a few basis points during the quarter due to lower interest rates, a flatter yield curve and a reduction in purchase accounting accretion. Notably, core NIM is expected to remain essentially flat as lower interest rates are offset by favorable asset mix changes and favorable funding cost and mix changes.

Improvement in Revenues: BB&T projects average loan growth of around 1–3%, assuming the economy will remain stagnant at the current level. Therefore, driven by improved loans, we believe BB&T’s top line will witness moderate growth.

Notably, management expects total non-interest income to be relatively flat year-over-year during the third quarter due to seasonal decrease in insurance revenues.

Expenses to Fall Due to Synergies from Acquisitions: Excluding merger-related and restructuring charges, BB&T expects expenses to decline 1–2% driven by cost savings from acquisitions. Notably, quarterly expenses will include approximately $11 million in increased FDIC insurance premium expenses.

Further, management targets to generate positive operating leverage in the second half of 2016, on the back of its acquisitions.

Asset Quality to Support Results: BB&T expects loan loss provision to match net charge-offs (NCOs) in addition to providing for incremental loan growth. Also, management expects NCOs to remain within 0.35–0.45% range, while non-performing assets levels to remain stable sequentially.

Further, provision on new loan growth is expected to be similar to the absolute reserve rate that the company will have on the total portfolio.

Earnings Whispers

Our proven model indicates that this time around the chances of BB&T surpassing the Zacks Consensus Estimate cannot be conclusively predicted as it does not have the right combination of the two key components. Note that a stock needs to have both a positive Earnings ESPand a Zacks Rank #1 (Strong Buy) or at least #2 (Buy) or #3 (Hold) to have a significantly higher chance of beating the earnings estimates.

Zacks ESP: The Earnings ESP for BB&T is 0.00%. This is because the Most Accurate estimate of 70 cents is on par with the Zacks Consensus Estimate.

Zacks Rank: BB&T’s Zacks Rank #3 increases the predictive power of ESP. But we need to have a positive ESP to be sure of an earnings beat.

Nonetheless, the Zacks Consensus Estimate for the third quarter indicates a year-over-year rise of about 10%.

Stocks That Warrant a Look

Here are a few other finance stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming announcements.

Synovus Financial Corporation (SNV - Analyst Report) has an Earnings ESP of +2.00% and carries a Zacks Rank #3. It is scheduled to report results on Oct 18.

BlackRock, Inc. (BLK - Analyst Report) is slated to release results on Oct 18. Ithas an Earnings ESP of +0.20% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks Rank #1 stocks here.

Raymond James Financial, Inc. (RJF - Analyst Report) has an Earnings ESP of +2.04% and carries a Zacks Rank #2. The company is slated to release results on Oct 26.

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