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Can Q4 Earnings Propel UBS Group (UBS) Stock to New Highs?

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Shares of UBS Group AG (UBS - Free Report) , which are trading close to their 52-week high, might reach new peaks post the company’s fourth-quarter 2017 results on Jan 22. Results might benefit from equity market rally and improved business sentiments during the quarter. However, a persistent low rate environment in the domestic economy is likely to weigh on the bank’s revenues.

The Swiss banking giant’s third-quarter 2017 net profit attributable to common shareholders increased 14% year over year. Results primarily benefited from increase in net fees and commissions, and efficient expense management. However, lower net interest income and trading income were the main concerns.

Looking at the price performance, UBS Group stock has gained 8% year to date, outperforming the 6.6% rally of its industry.

The stock’s rally post fourth-quarter earnings release majorly depends on whether the firm is able to impress the market with its results.

Factors That Might Influence Q4 Results

Low Interest Rates to Dampen Revenues: UBS Group’s profitability is likely to be hit by the continued negative interest rate environment, which was adopted by the Swiss National Bank in late 2014 to boost growth and inflation of the economy.

Fee Income Might Remain Stable: During the quarter, trading environment was disappointing as markets experienced low volatility. Revenues from advisory and underwriting might be on the lower side due to a decrease in M&A activities during the quarter.

However, the equity market remained strong and might support UBS Group’s financials. Also, the Wealth Management division might benefit to some extent from the company’s consistent focus on loan growth.

Expenses Likely to Decline: The bank’s focus on reducing expenses is likely to be reflected in fourth-quarter results. It anticipates achieving CHF 2.1 billion in net cost reductions in 2017.

Adverse Effect of Tax Reform: Following the passage of the U.S. tax act in December 2017, UBS Group expects one-time charge of nearly CHF 3 billion in the fourth quarter related to write-down of certain net deferred tax assets.

UBS AG Price and Consensus

UBS Group carries a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other foreign banks, Royal Bank of Scotland Group is scheduled to report results on Feb 23 while Barclays (BCS - Free Report) will release results on Feb 22. ING Group (ING - Free Report) will report fourth-quarter earnings on Feb 1.

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