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Will Fifth Third (FITB) Stock Rise Further Post Q3 Earnings?

FITB STT RJF LAZ

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Fifth Third Bancorp (FITB - Free Report) is scheduled to report third-quarter 2016 results on Oct 20.

The Ohio-based banking giant’s second-quarter 2016 earnings had beaten the Zacks Consensus Estimate and improved year over year as well. Results were aided by higher revenues, partially offset by increased expenses as well as provisions.

Interestingly, in the trailing four quarters, Fifth Third delivered positive earnings surprises with an average beat of 7.4%. Regarding the stock’s performance, Fifth Third has gained more than 7% over the last three months.

FIFTH THIRD BK Price and EPS Surprise

Will the upcoming earnings release give a boost to Fifth Third’s stock? This depends largely on whether the firm is able to post a beat in the third quarter. However, our quantitative model doesn’t point to an earnings beat. Here’s why:

Fifth Third doesn’t have the right combination of the two key ingredients – a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) – for increasing the chances of an earnings beat.

Zacks ESP: The Earnings ESP for Fifth Third is -2.44%. This is because the Most Accurate Estimate of 40 cents is lower than the Zacks Consensus Estimate of 41 cents.

Zacks Rank: Fifth Third’s Zacks Rank #2 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of a positive earnings surprise.

Factors to Influence Q3 Results

Expenses to Trend Higher: Expenses might trend upward in the upcoming release due to an increase in FDIC surcharge, which went effective in third-quarter 2016. Further, relating to the branch closures, the bank expects to record non-cash impairment charge in the range of $25–$30 million for the to-be-reported quarter.
 
Soft Loan Growth to Keep Net interest Income (NII) Under Pressure: According to recent data from the Federal Reserve, commercial and industrial loans across the industry were sequentially flat during the third quarter. This may have subdued overall loan growth in the quarter, consequently hurting NII growth.

Slight Benefit from Increased 1-month LIBOR: The recent spike in LIBOR – a global benchmark for dollar lending – is set to benefit banks with huge amount of commercial and industrial (C&I) loans, as most of these loans are tied to one- and three-month LIBOR. The funding is usually from deposits, the costs of which are not tied to LIBOR. Notably, earnings of Fifth Third, which have more than 40% C&I loan concentration of total loans, might get a lift to some extent.

Decline in Net Interest Margin (NIM): The persistent low rate environment has taken a toll on the bank’s margins. As the Fed did not take any step to raise interest rates further, the company is not likely to record improvement in its NIM in the quarter. Notably, management had guided 2–4 basis points decline in NIM for the third quarter, on a sequential basis, due to higher wholesale funding costs and day count.

Fee Income Strength to Drive Revenues: Fifth Third’s non-interest income might get a boost, by improvement in mortgage banking revenues, on the back of normal seasonality in the third quarter and strength in the housing sector. Further, credit card remained healthy while wealth management fees are likely to shoot up given the strong equity markets in the quarter.

Stable Credit Quality with Reduced Energy Allowances: The upcoming release is likely to record a stable credit performance. Further, given the rebound in oil prices after hitting rock bottom in February, the allowances tied with the energy portfolio should not be significant.

Activities of Fifth Third during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter remained unchanged at 41 cents per share over the last seven days.

Stocks that Warrant a Look

Here are some stocks worth considering, as they have the right combination of elements to post an earnings beat this quarter.

State Street Corporation (STT - Free Report) is slated to release results on Oct 26. The company has an Earnings ESP of +0.80% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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

Lazard Ltd. (LAZ - Free Report) , another Zacks Rank #2 stock, has an Earnings ESP of +3.90%. It is scheduled to report results on Oct 27.

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