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Will Regions Financial (RF) Q3 Earnings Gain From Loan Growth?

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Regions Financial (RF - Free Report) is scheduled to report third-quarter 2018 results on Oct 23, before the opening bell. The bank’s results are estimated to reflect year-over-year rise in both revenues and earnings.

Also, the company has a decent earnings surprise history. It surpassed earnings in three of the preceding four quarters, coming up with an average positive earnings surprise of 4.95%.

This Birmingham, AL-based company’s second-quarter 2018 earnings outpaced the Zacks Consensus Estimate and compared favorably with the prior-year quarter’s earnings as well. Easing margin pressure and higher revenues were the positive factors. Moreover, credit quality recorded significant improvement. However, lower deposits balances were the undermining factors. In addition, expenses escalated in the quarter.

Further, the Zacks Consensus Estimate for third-quarter earnings remained unchanged at 36 cents over the last 60 days, reflecting a year-over-year improvement of nearly 44%. The Zacks Consensus Estimate for sales of $1.47 billion indicates around 4% growth from the prior-year quarter.

In addition, Regions’ results are expected to reflect a marginal rise, on a sequential basis, in average interest-earning assets with the Zacks Consensus Estimate for the to-be-reported quarter at $108.7 billion.

Notably, the company’s share price has appreciated post Q2 earnings. For the three-month period ended Sep 30, 2018, the stock has gained around 3.2%.

Will the upcoming earnings release give a boost to Regions’ stock? This depends largely on whether or not the firm is able to post a beat in the third quarter.

Factors to Influence Q3 Results

Loan Growth: Per the Fed’s latest data, weakness in revolving home equity loans might have offset growth in commercial and industrial (C&I), and consumer loans to some extent.

In addition, management’s expectations of loan and deposit growth in 2018 will likely be reflected in this quarter. The bank projects average loans to reflect year-over-year growth in low-single digits, while average deposits will likely indicate rise in low-single digits, excluding brokered and Wealth Institutional Services deposits.

Modest Rise in Net Interest Income (NII): A modest increase in lending is expected to have led to improvement in NII. A rise in interest rates will provide some support despite flattening of the yield curve in the Sep-end quarter. Notably, management’s projections of the 2018 NII and other financing income’s rise of 4-6% are likely to show impact in the quarter under review. Based on the market performance and conditions, management expects NII to be toward the upper end of the range.

Non Interest Income Might Escalate: The persistent decline in non-interest income has weighed on the top line in the last few years. Equity and fixed income trading revenues are expected to remain muted on a year-over-year basis. The trend of consumer spending was strong during the Jul-Sep quarter, which will likely have bolstered the bank’s credit and debit card revenues. However, poor mortgage banking revenues during the quarter are anticipated to have offset the positives to some extent. Nevertheless, adjusted non-interest income is estimated to be up 3-6% in 2018.

Notably, the Zacks Consensus Estimate for capital market revenues is estimated to decline 10.5% sequentially to $51 million, while commercial credit fee income is projected to be down marginally to $16.9 million.

Expenses Might Rise Slightly: Regions’ bottom line is expected to reflect the decent support of its efficient expense management during the quarter to be reported. Notably, the company is on track for a $400-million expense reduction by 2019. While investing in revenue-generating areas, the company intends to keep expenses stable.

Here is what our quantitative model predicts:

Our proven model shows that the company has the combination of the two key ingredients for a possible earnings beat — a 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.

Earnings ESP: The Earnings ESP is currently pegged at +0.40%. This is a very significant and leading indicator of a likely positive earnings surprise for the company.

Zacks Rank: The combination of Regions’ Zacks Rank #3 and a positive ESP makes us confident of an earnings beat.  

Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into an earnings announcement.

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.

Franklin Resources, Inc. (BEN - Free Report) is slated to release results on Oct 25. The company has an Earnings ESP of +0.68% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Cullen/Frost Bankers, Inc. (CFR - Free Report) is +0.07% and it also carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Oct 25.

T. Rowe Price Group, Inc. (TROW - Free Report) has an Earnings ESP of +0.78% and holds a Zacks Rank of 2. It is slated to report results on Oct 25.

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