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Will State Street (STT) Disappoint Investors in Q2 Earnings?

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State Street Corporation (STT - Free Report) is scheduled to report second-quarter 2017 results before the market opens on Jul 26. Its earnings and revenues are expected to grow year over year.

Last quarter, an increase in fee revenues drove the company’s operating earnings growth. In fact, the number handily outpaced the Zacks Consensus Estimate. However, higher expenses was the downside.

State Street boasts an impressive earnings surprise history. The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with an average beat of 11.1%.

These earnings beats supported a 17.1% year-to-date rally of the stock, significantly outperforming the 4.7% growth of the industry it belongs to.

State Street Corporation Price and EPS Surprise
 

State Street Corporation Price and EPS Surprise | State Street Corporation Quote

Will the rally in stock price continue post second-quarter earnings release? To a great extent, it depends on the company’s ability to maintain its trend of beating earnings estimates.

According to our quantitative model, chances of State Street beating the Zacks Consensus Estimate in the second quarter are low. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #3 (Hold) or better for increasing the odds of an earnings beat. But, this is not the case here as is elaborated below

(You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.)

Zacks ESP: The Earnings ESP for State Street is -0.64%. This is because the Most Accurate estimate of $1.56 is below the Zacks Consensus Estimate of $1.57.

Zacks Rank: State Street’s Zacks Rank #2 (Buy) increases the predictive power of ESP. However, we also need a positive Earnings ESP to be confident of an earnings beat.

Moreover, State Street’s activities during the quarter failed to win analysts’ confidence. The Zacks Consensus Estimate for the quarter remained stable over the last seven days.

Factors to Influence Q2 Results

Net Interest Margin (NIM) Improvement: The Mar 2017 rate hike should support the company’s NIM expansion in the to-be-reported quarter. The company expects NIM to grow in the mid single-digits.

Revenues to Increase Modestly: Although, trading services activity is likely to remain muted in the second-quarter, the company expects servicing fees to improve, driven by client flows and net new business.

Additionally, with moderate growth in loans witnessed in the quarter and improving rate scenario, net interest income (NII) is expected to increase modestly. In fact, management expects the NIM growth to offset the modest decline in balance sheet, leading to an increase in NII.

Expenses to Remain Stable: Although the benefits of the company’s cost-saving initiatives through State Street Beacon are not expected to be realized much in the quarter, the same is likely to partly offset expenses to support new business, continued business investments, and merit and depreciation increases.

Stocks That Warrant a Look

Here are some finance stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter.

Banc of California, Inc. (BANC - Free Report) is scheduled to release results on Jul 26. It has an Earnings ESP of +8.33% and a Zacks Rank #3.

Hilltop Holdings Inc. (HTH - Free Report) has an Earnings ESP of +2.33% and a Zacks Rank #2. The company is slated to release results on Jul 27.

Franklin Resources, Inc. (BEN - Free Report) is slated to release results on Jul 28. It has an Earnings ESP of +1.37% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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