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Will Regions (RF) Q4 Earnings Disappoint on High Expenses?
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Regions Financial Corporation (RF - Free Report) is scheduled to report its fourth-quarter 2016 results before the opening bell on Jan 20.
In the last reported quarter, this banking giant had delivered a positive earnings surprise of 14.3%. Earnings jumped 26.3% year over year. Results were driven by impressive growth in fee income and a drastic fall in credit cost. Relatively stable net interest income also supported the results. However, these were partially offset by a rise in operating expenses.
Regarding the stock’s performance, shares of the company surged a whopping 73.6% over the past one year, outperforming 54.2% growth for the Zacks categorized Southeast Banks Industry.
Notably, Regions delivered an earnings beat in three of the trailing four quarters, with an average positive earnings surprise of 7.5%.
Regions has been prudent in controlling costs, which could act as a tailwind for the quarter. Owing to the current global macroeconomic headwinds, management’s plan to slash $300 million of core expenses over the coming three years is right on track. In addition, the core expenses are expected in the range of $880–$885 million for fourth-quarter 2016, significantly below the adjusted level of $912 million in 3Q16. Further, salaries and benefits are likely to decline in the fourth quarter due to the impact of ongoing expense management.
While management anticipates average loan growth to remain relatively stable in the quarter to be reported on a year-over-year basis, down from the prior loan growth guidance of less than 3%, we do not expect significant improvement in net-interest income amid the low-rate environment. Though rise in the 10-year Treasury yield since Nov 8, 2016 is anticipated to alleviate pressure on the net interest margin (NIM) to some extent, the favorable influence on NIM is not likely to occur in the quarter.
The persistent decline in non-interest income has weighed on the top line for the last few years. Given the company’s previously announced posting order process for customer deposit accounts, which commenced in fourth-quarter 2015, a decline in fee income in the lower end of the range of $10–$15 million in each quarter is anticipated. We believe this will further affect total non-interest income, thereby restricting top-line growth.
Given the current credit trends and fluctuating commodity prices, management expects volatility in certain credit metrics, mainly related to larger dollar commercial credits in the company’s portfolio.
Activities of Regions during the first quarter of the year were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter remained stable at 22 cents per share over the last seven days.
Earnings Whispers
Our proven model does not conclusively call for an earnings beat this time around. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The earnings ESP for Regions is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 22 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Regions’ Zacks Rank #2 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings beat.
Stocks That Warrant a Look
Here are some other stocks you may want to consider, as according to our model, these have the right combination of elements to post an earnings beat this quarter.
The earnings ESP for SunTrust Banks, Inc. (STI - Free Report) is +2.27% and it carries a Zacks Rank #2. The company is expected to release fourth-quarter results on Jan 20.
Fifth Third Bancorp (FITB - Free Report) has an earnings ESP of +2.33% and a Zacks Rank #1. It is slated to report fourth-quarter results on Jan 24.
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Will Regions (RF) Q4 Earnings Disappoint on High Expenses?
Regions Financial Corporation (RF - Free Report) is scheduled to report its fourth-quarter 2016 results before the opening bell on Jan 20.
In the last reported quarter, this banking giant had delivered a positive earnings surprise of 14.3%. Earnings jumped 26.3% year over year. Results were driven by impressive growth in fee income and a drastic fall in credit cost. Relatively stable net interest income also supported the results. However, these were partially offset by a rise in operating expenses.
Regarding the stock’s performance, shares of the company surged a whopping 73.6% over the past one year, outperforming 54.2% growth for the Zacks categorized Southeast Banks Industry.
Notably, Regions delivered an earnings beat in three of the trailing four quarters, with an average positive earnings surprise of 7.5%.
Regions Financial Corp. Price and EPS Surprise
Regions Financial Corp. Price and EPS Surprise | Regions Financial Corp. Quote
Factors to Drive Q4 Results
Regions has been prudent in controlling costs, which could act as a tailwind for the quarter. Owing to the current global macroeconomic headwinds, management’s plan to slash $300 million of core expenses over the coming three years is right on track. In addition, the core expenses are expected in the range of $880–$885 million for fourth-quarter 2016, significantly below the adjusted level of $912 million in 3Q16. Further, salaries and benefits are likely to decline in the fourth quarter due to the impact of ongoing expense management.
While management anticipates average loan growth to remain relatively stable in the quarter to be reported on a year-over-year basis, down from the prior loan growth guidance of less than 3%, we do not expect significant improvement in net-interest income amid the low-rate environment. Though rise in the 10-year Treasury yield since Nov 8, 2016 is anticipated to alleviate pressure on the net interest margin (NIM) to some extent, the favorable influence on NIM is not likely to occur in the quarter.
The persistent decline in non-interest income has weighed on the top line for the last few years. Given the company’s previously announced posting order process for customer deposit accounts, which commenced in fourth-quarter 2015, a decline in fee income in the lower end of the range of $10–$15 million in each quarter is anticipated. We believe this will further affect total non-interest income, thereby restricting top-line growth.
Given the current credit trends and fluctuating commodity prices, management expects volatility in certain credit metrics, mainly related to larger dollar commercial credits in the company’s portfolio.
Activities of Regions during the first quarter of the year were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter remained stable at 22 cents per share over the last seven days.
Earnings Whispers
Our proven model does not conclusively call for an earnings beat this time around. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The earnings ESP for Regions is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 22 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Regions’ Zacks Rank #2 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings beat.
Stocks That Warrant a Look
Here are some other stocks you may want to consider, as according to our model, these have the right combination of elements to post an earnings beat this quarter.
UMB Financial Corporation (UMBF - Free Report) has an earnings ESP of +1.18% and a Zacks Rank #1. It is scheduled to report fourth-quarter results on Jan 25. You can see the complete list of today’s Zacks #1 Rank stocks here.
The earnings ESP for SunTrust Banks, Inc. (STI - Free Report) is +2.27% and it carries a Zacks Rank #2. The company is expected to release fourth-quarter results on Jan 20.
Fifth Third Bancorp (FITB - Free Report) has an earnings ESP of +2.33% and a Zacks Rank #1. It is slated to report fourth-quarter results on Jan 24.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>