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Can Loans, High Rates Aid State Street (STT) in Q1 Earnings?

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State Street (STT - Free Report) is scheduled to report first-quarter 2019 results on Apr 23, before the market opens. Its revenues and earnings for the to-be-reported quarter are expected to decline year over year.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Results were aided by growth in revenues. However, increase in expenses along with decline in assets under custody and administration plus assets under management (AUM) were the undermining factors.

Moreover, State Street boasts an impressive earnings surprise history. The company’s earnings have surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being 1.2%.

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 first quarter failed to win analysts’ confidence. Thus, the Zacks Consensus Estimate for earnings for the to-be-reported quarter moved 3.3% downward over the past seven days. Also, the figure of $1.19 per share suggests a decline of 26.5% from the year-ago quarter.

The Zacks Consensus Estimate for sales is pegged at $2.91 billion for the first quarter, reflecting 3.8% year-over-year decline.

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

Factors at Play

The Zacks Consensus Estimate for average interest earning assets of $180.3 billion for the first quarter represents a decline of 6.4% from the prior-year quarter. However, overall lending activities remained decent during the quarter. Thus, driven by loan growth along with benefits of higher interest rates, State Street’s net interest income (NII) is likely to either remain stable or witness modest improvement.

However, volatility remained low during the quarter. As a result of which, the company’s trading revenues are not expected to witness improvement. Also, while foreign exchange trading volumes were relatively mixed during the quarter, foreign exchange volatility declined. Thus, because of lower volatility, foreign exchange trading revenues are not expected to be positively impacted during the to-be-reported quarter.

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

Notably, the company expects fee revenues in first-quarter 2019 to be down 3-4% sequentially.

Further, management expects expenses to decline nearly 2% on a sequential basis.

Now, here is what our quantitative model predicts:

According to our quantitative model, chances of State Street beating the Zacks Consensus Estimate in the first 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 -0.39%.

Zacks Rank: The company currently has a Zacks Rank #3. While this increases the predictive power of ESP, we need a positive ESP to be confident of an earnings beat.

Stocks That Warrant a Look

Here are some finance stocks that you may want to consider as these have the right combination of elements to post an earnings beat this quarter, per our model.

BankUnited, Inc. (BKU - Free Report) has an Earnings ESP of +1.89% and carries a Zacks Rank of 3 at present. The company is slated to release results on Apr 24.

Associated Banc-Corp (ASB - Free Report) is expected to release results on Apr 25. It presently has an Earnings ESP of +0.55% and a Zacks Rank #3.

SVB Financial Group (SIVB - Free Report) is slated to release results on Apr 25. It has an Earnings ESP of +0.42% and currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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