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Can High Revenues Drive Northern Trust's (NTRS) Q4 Earnings?

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Northern Trust Corporation’s (NTRS - Free Report) fourth-quarter results, scheduled for Jan 24, are expected to reflect a year-over-year rise in earnings and revenues.

Notably, the company provides majority of its asset management services through the C&IS unit, which generates more than 50% of total revenues. A rise in revenues in this segment will boost overall revenues for the company. The Zacks Consensus Estimate of $1.41 billion for sales for the to-be-reported quarter reflects a year-over-year improvement of 13.3%.

Moreover, Northern Trust uses a lag effect to calculate its corporate custody and investment management fees, i.e. the computations are based on the prior quarter-end valuations. Since the performance of equity markets were relatively decent in the fourth quarter, the company will likely be able to register growth in custody, servicing and management fees.

Here are the other factors that might influence the company’s Q4 performance:

Modest Rise in Net Interest Income (NII): Overall loan growth remained decent in the quarter. Given the improvement in loan balances, along with the effect of rising interest rates, Northern Trust should record an increase in NII.

Foreign Exchange Trading Revenues to Remain Stable: Given the mixed trend in foreign exchange (“FX”) trading volatility and volumes in the fourth quarter, the company’s revenues from FX trading might remain flat for the quarter.

Marginal Increase in Expenses: Despite some cost-saving initiatives, Northern Trust’s continued investments in new business activities may lead to a marginal rise in expenses. Further, management expects transaction and integration costs relating to the acquisition of UBS Asset Management’s fund administration units in Luxembourg and Switzerland to be $8-$10 million in the fourth quarter.

Adverse Impact of New Tax Code: The tax reform might result in elevated operating expenses from one-time bonus payments, higher charitable contributions and investment losses from securities portfolio restructurings. Also, though the company has not provided any information about the write-down of deferred tax assets (DTAs), it might record a significant one-time charge in the quarter.

Let’s have a look at what our quantitative model predicts:

Our proven model indicates that chances of Northern Trust beating the Zacks Consensus Estimate are high as it has the right combination of the two key ingredients — positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold).

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 Northern Trust is +0.09%.

Zacks Rank: The combination of Northern Trust’s Zacks Rank #2 and a positive ESP makes us confident of an earnings beat.

However, activities of the company during the quarter under review were unable to win analysts’ confidence. As a result, the Zacks Consensus Estimate for earnings of $1.30 remained unchanged over the last seven days. Nevertheless, the figure reflects a year-over-year improvement of 17.1%.

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 Legg Mason, Inc. (LM - Free Report) is +0.18% and the stock flaunts a Zacks Rank of 1. The company is scheduled to release December quarter-end results on Jan 24. You can see the complete list of today’s Zacks #1 Rank stocks here.

T. Rowe Price Group, Inc. (TROW - Free Report) is slated to release results on Jan 30. The company has an Earnings ESP of +1.49% and carries a Zacks Rank of 2.

Franklin Resources, Inc. (BEN - Free Report) has an Earnings ESP of +0.98% and holds a Zacks Rank of 2. It is scheduled to report results on Jan 30.

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