The Q1 earnings season is just around the corner and investors are eagerly waiting for the results of the mega banks, which remained in the spotlight throughout the quarter for a number of reasons.
The Fed’s dovish monetary policy, ongoing political and economic issues related to Brexit, concerns related to unsolved U.S.-China trade deal negotiations, the U.S. government shutdown and expectation of global economic slowdown were reasons of worries in the first quarter.
On the trading front, performance of capital markets might be a matter of concern. Despite strong equity markets and a rise in Treasury bonds, low volumes and reduced client activity were witnessed in the to-be-reported quarter, partly on the U.S. government shutdown and other lingering economic uncertainties.
Further, investment banking activities were subdued in the first quarter. Hence, equity underwriting fees and debt origination fees are anticipated to be adversely impacted.
Dismal mortgage banking performance was also a dampener in the quarter amid rising interest rates, which made homes less affordable. Originations and refinancing activities slowed down during the quarter.
Nevertheless, a decent lending scenario — mainly in the areas of commercial and industrial and consumer — during the Mar-end quarter will likely lead to an increase in net interest income (NII). Also, the December 2018 rate hike will have a slight positive impact on the company’s net interest margin despite flattening of the yield curve and sometimes inversion of the yield curve, along with steadily increasing deposit betas. Credit quality is also likely to remain strong, backed by conservative underwriting standards.
Expense reduction, which has helped banks remain profitable, is unlikely to be a big support, as these companies have already slashed the majority of unnecessary expenses. While the absence of considerable legal expenses over the last few quarters is encouraging, increased investments in technology to improve digital offerings might escalate costs moderately.
In the S&P 500 universe, the Zacks Finance sector’s total earnings, of which major banks account for nearly 45%, are projected to increase 0.5% year over year in the quarter to be reported. This comes in lower than 12.6% growth recorded in the prior quarter.
(For detailed look at the earnings outlook for this industry and others, please read our Earnings Outlook article.)
Selecting the Winners
This is the right time for you to select some banking stocks that are well positioned to beat earnings estimates in their upcoming releases.
Choosing stocks with earnings beat potential might be a difficult task unless one knows the process to shortlist. One way to do it is by picking stocks that have the combination of a favorable Zacks Rank — Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — and a positive Earnings ESP.
Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising in their upcoming earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
5 Major Banks Set for Earnings Surprises
Here are five major regional bank stocks that have the right combination of elements to deliver positive earnings surprises in their upcoming announcements:
M&T Bank Corporation (MTB - Free Report) is slated to release results on Apr 15. The company has an Earnings ESP of +0.05% 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 Comerica Incorporated (CMA - Free Report) is +0.52% and it carries a Zacks Rank of 3, currently. The company is scheduled to report earnings on Apr 16.
BankUnited, Inc. (BKU - Free Report) has an Earnings ESP of +1.89% and at present, holds a Zacks Rank of 3. It is slated to report quarterly figures on Apr 24.
The Bank of New York Mellon Corporation (BK - Free Report) is scheduled to release results on Apr 17. The company, which currently carries a Zacks Rank of 3, has an Earnings ESP of +0.63%.
The Earnings ESP for Northern Trust Corporation (NTRS - Free Report) is +0.57% and it holds a Zacks Rank of 3, at present. The company is set to report quarterly numbers on Apr 23.
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