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Higher Fee Revenues to Aid State Street's (STT) Q1 Earnings

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State Street (STT - Free Report) is scheduled to report first-quarter 2018 results before the market opens on Apr 20. Its quarterly earnings and revenues are expected to grow year over year.

Last quarter, an increase in revenues drove the company’s operating earnings growth. In fact, the figure outpaced the Zacks Consensus Estimate. However, a decline in trading servicing fees was on 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 7.4%.

Also, activities of the company during the first quarter encouraged analysts to revise estimates upward. Thus, the Zacks Consensus Estimate for earnings for the to-be-reported quarter moved nearly 1% upward to $1.58 over the last 30 days. Also, the figure represents a year-over-year jump of 30.8%.

The Zacks Consensus Estimate for sales is $3.01 billion for the quarter, reflecting 8.3% year-over-year growth.

State Street Corporation Price and EPS Surprise

 

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

Factors at Play

Higher fee revenues to lend support: Driven by the benefits of the acquired GE Asset Management business, State Street’s management fees are likely to improve. Further, management fees as well as servicing fees are anticipated to witness modest increase, driven by decent equity markets performance, new business wins and the impact of the weaker U.S. dollar during the first quarter.

Also, significant market volatility is expected support trading revenues. Specifically, foreign exchange trading revenues are likely to improve, given the higher foreign exchange trading volumes and increased volatility.

Additionally, with the expansion in the spread between three-month LIBOR and the Fed funds rate, along with an increase in trading volumes, securities lending revenues are expected to trend higher during the quarter. Thus, State Street’s fee revenues are expected to rise in the to-be-reported quarter.

Stable net interest income (NII): The Zacks Consensus Estimate for average interest earning assets of $190.3 billion for the quarter represents a decline of 13.2% year over year. Nonetheless, overall lending activities were decent during the first quarter. This, along with higher interest rates will likely boost State Street’s NII. However, lower interest earning assets are likely to offset this gain to some extent.

Modest rise in operating expenses: State Street expects operating expenses to rise slightly as compensation benefit expenses will be seasonally higher in the quarter owing to the effect of the accounting treatment of equity compensation from retirement eligible employees as well as payroll taxes.

Moreover, the expense level will also be dependent on the revenue backdrop in the quarter and the onboarding of new clients. Nonetheless, State Street Beacon expense savings will offset the rise to some extent during the first quarter.

Here is what our quantitative model predicts:

State Street does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

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 -0.37%.

Zacks Rank: State Street has a Zacks Rank #3, which increases the predictive power of ESP. But we also need to have a positive ESP to be confident of a positive earnings surprise.

Stocks That Warrant a Look

Here are a few bank 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 Bank of New York Mellon Corporation (BK - Free Report) is slated to release first-quarter results on Apr 19. It has an Earnings ESP of +0.21% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BB&T Corporation (BBT - Free Report) is slated to report results on Apr 19. It has an Earnings ESP of +1.43% and carries a Zacks Rank #3.

Regions Financial Corporation (RF - Free Report) has an Earnings ESP of +1.21% and carries a Zacks Rank of 3. The company is slated to release results on Apr 20.

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