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What's in the Cards for State Street (STT) in Q4 Earnings?

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State Street (STT - Free Report) is scheduled to report fourth-quarter and 2018 results on Jan 18, before the market opens. While revenues for the to-be-reported quarter are expected to grow year over year, earnings are likely to witness a decline.

In the last reported quarter, the company’s earnings missed the Zacks Consensus Estimate. Results were hurt by an increase in expenses. However, higher revenues provided some support.

Nevertheless, State Street boasts an impressive earnings surprise history. The company’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being 2.8%.

State Street Corporation Price and EPS Surprise

 

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

Notably, activities of the company during the fourth quarter failed to win analysts’ confidence. Thus, the Zacks Consensus Estimate for earnings of $1.71 for the to-be-reported quarter has moved 4.5% downward over the past seven days. Further, the figure represents a year-over-year decline of 6.6%.

The Zacks Consensus Estimate for sales is pegged at $2.98 billion for the fourth quarter, reflecting 4.8% year-over-year growth.

Before we take a look at what our quantitative model predicts, let’s check the factors that are expected to impact fourth-quarter results.

Factors at Play

The Zacks Consensus Estimate for average interest-earning assets of $182.6 billion for the fourth quarter represents a marginal decline from the prior quarter. Moreover, overall lending activities were not very impressive during the quarter. Nevertheless, driven by modest loan growth, along with benefits of higher interest rates, State Street’s net interest income (NII) is likely to either remain stable or witness a modest improvement.

Management expects momentum in NII growth to continue in the fourth quarter.

In addition, management expects fourth-quarter servicing fee revenues to be flat sequentially on assumptions of continuing industry conditions and stable market levels.

Driven by substantial volatility during the quarter, the company’s trading revenues are expected to be positively impacted. However, while foreign exchange trading volumes were relatively flat during the quarter, foreign exchange volatility in the emerging markets declined sequentially. Thus, because of lower volatility, foreign exchange trading revenues are likely to decline during the to-be-reported quarter.

Further, the spread between the three-month LIBOR and the Fed funds rate contracted during the fourth quarter. Thus, because of narrower spreads, securities lending revenues are likely to decline sequentially.

State Street’s expenses have remained elevated over the past few years due to rise in compensation and employee benefit costs as well as acquisition and restructuring costs. Owing to the company’s continuing restructuring efforts, costs are likely to remain elevated. However, the State Street Beacon expense savings are likely to offset the rise to some extent during the quarter. Notably, management expects total expenses in the fourth quarter to be marginally above the third-quarter level.

Here is what our quantitative model predicts:

Chances of State Street beating the Zacks Consensus Estimate in the fourth quarter are low. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — 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.

Earnings ESP: The Earnings ESP for State Street is -1.95%.

Zacks Rank: State Street currently carries a Zacks Rank #5 (Strong Sell).

Stocks That Warrant a Look

Here are a few bank stocks that you may want to consider, as according to our model, these have the right combination of elements to post an earnings beat in the to-be-reported quarter.

Earnings ESP for M&T Bank (MTB - Free Report) is +0.80% and the stock currently has a Zacks Rank of 3. The company is scheduled to release results on Jan 17.

BB&T Corporation (BBT - Free Report) has an Earnings ESP of +0.53% and it presently carries a Zacks Rank of 3. It is also slated to report quarterly numbers on Jan 17.

Huntington Bancshares Incorporated (HBAN - Free Report) is set to report earnings on Jan 24. The company has an Earnings ESP of +0.32% and it currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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