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Will Trading Slump Hurt Barclays (BCS) Stock in Q2 Earnings?

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Barclays PLC (BCS - Free Report) is slated to announce second-quarter 2017 results on Jul 28, before the opening bell. It is expected to record a year over year decline in revenues and earnings.

Encouraging underwriting performance, lower costs and significant drop in losses in Non-Core division were the primary reasons for improvement in last quarter’s results. However, fall in trading revenues, lower net interest income and rise in credit impairment charges were the undermining factors.

Analysts’ doesn’t seem to be happy with the company’s business activities in the just concluded quarter. Hence, the Zacks Consensus Estimate declined 40.1% over the last 60 days. Also, Barclays’ shares on NYSE have declined 0.8% so far this year, as against 15.4% gain for the industry.

Earnings Whispers

Our proven model does not conclusively indicate that Barclays will outpace earnings estimates in the second quarter. Note that a stock needs to have both a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher to have a significantly higher chance of beating earnings. 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 Barclays is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 13 cents.

Zacks Rank: Barclays currently holds a Zacks Rank #5 (Strong Sell).

Factors to Influence Q2 Results

Trading weakness to hurt revenue growth: During the second quarter, trading environment was disappointing as markets experienced low volatility. Barclays’ trading income is likely to face fixed-income trading slump. Also, trading in equities is expected to witness a downtrend due to decreased client activities.

Rise in loan impairment charges: Loan impairment charges should continue to trend upward in the quarter as consistent global slowdown has led to deterioration in asset quality.

Investment banking to modestly support revenues: Driven by improving market conditions, the quarter witnessed an increase in equity issuance while debt issuance was hit by higher interest rates. Per the data compiled by Thomson Reuters, equity market activities led to over 22% increase in equity underwriting fees. So, given this favorable trend, Barclays is projected to witness a rise in the same.

However, the data indicates that global fees related to bond activity roughly totaled $6.5 billion during the quarter, down more than 16% year over year. So, the bank is expected to record a decline in debt underwriting fees during the quarter.

Further, global M&A activity remained lackluster during the quarter. Per the data, the total deal value of announced M&As across the globe declined during the quarter. Thus, total fees earned through deal making are likely to decline as well. Likewise, Barclays is likely to record a fall in advisory fees.

Rise in loan demand to support interest income: While a low interest rate environment across several major economies continue hampering interest income growth, increase in loan demand is likely to offset it to some extent.

Cost saving efforts to play savior: Barclays has been on a streamlining spree since the second half of 2016. It announced divestures of several non-core businesses. These initiatives are expected to improve the bank’s operating efficiency and trim costs. Nevertheless, legal and other regulatory expenses are bound to adversely affect its bottom line.

Stocks that Warrant a Look

Here are a few 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:

Hilltop Holdings Inc. (HTH - Free Report) is slated to release results on Jul 27. It has an Earnings ESP of +2.33% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Franklin Resources, Inc. (BEN - Free Report) has an Earnings ESP of +1.37% and a Zacks Rank #2. It is slated to report June quarter-end results on Jul 28.

OM Asset Management PLC has an Earnings ESP of +2.63% and a Zacks Rank #2. The company is expected to release results on Aug 3.

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