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Santander Consumer (SC) Q3 Earnings: A Surprise in Store?

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Santander Consumer USA Holdings Inc. (SC - Free Report) is scheduled to announce third-quarter 2016 results on Nov 9, before the market opens.

Last quarter, Santander Consumer USA’s earnings declined year over year. Lower revenues and a rise in operating expenses were partially offset by a decline in provisions.

Additionally, the stock has plummeted more than 25% year to date. The primary reason for decline in share price is perhaps restatement of its financials due to accounting issues.

Why a Likely Positive Surprise?

Will Santander Consumer USA be able to turn around and record a rise in earnings this time? Let’s check what our quantitative model indicates.

The possibility of Santander Consumer USA beating the Zacks Consensus Estimate in the third quarter is high. This is because the stock has the right combination of the two key ingredients – positive Earnings ESP and a Zacks Rank #3 (Hold) or better – for increasing the chances of an earnings surprise.

Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks ESP: The Earnings ESP for Santander Consumer USA is +5.56%. This is because the Most Accurate estimate of 57 cents is above the Zacks Consensus Estimate of 54 cents.
 
Zacks Rank: Santander Consumer USA carries a Zacks Rank #2 (Buy). This further increases the predictive power of a positive Earnings ESP.

Notably, the Zacks Consensus Estimate has remained stable over the last seven days.

What is Driving the Better-than-Expected Earnings?

On the revenue front, Santander Consumer USA is expected to witness an uptrend. As the company largely provides auto loans, its financial performance is directly related to the overall health of the auto sector.

Though demand for vehicles (both new and used) has been tapering over the last couple of months, the effect of the same will likely take some time to impact the auto financing sector. So, Santander Consumer USA should continue to witness an overall rise in revenues, driven by a consistent rise in auto sales.

However, mounting operating expenses will continue to act as a major headwind for Santander Consumer USA in the quarter. Further, regulatory and compliance costs are anticipated to be on the higher side.

Also, compensation expenses will rise as the company continues its recruitment drive. Hence, rising expenses will somewhat dampen Santander Consumer USA’s bottom-line growth.

Additionally, as Santander Consumer USA will likely experience an increase in auto-loan origination, provision for loan losses too will trend higher.

Stocks That Warrant a Look

Some finance stocks worth considering, include Farmers Capital Bank Corporation (FFKT - Free Report) , Bank of America Corporation (BAC - Free Report) and JPMorgan Chase & Co. (JPM - Free Report) .

Farmers Capital has witnessed an upward earnings estimate revision of 6.7% over the past 30 days. Moreover, its share price is up over 12% in the past six months. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Bank of America currently carries a Zacks Rank #2. It has witnessed an upward earnings estimate revision of nearly 5.6% over the past 30 days. Its share price is up nearly 18% in the six months period.

JPMorgan also carries a Zacks Rank #2 and witnessed an upward earnings estimate revision of 3% over the past 30 days. Also, its share price has gained more than 10% in the past six months.

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