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What's in Store for SVB Financial (SIVB) in Q4 Earnings?

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SVB Financial Group SIVB is slated to announce fourth-quarter and 2019 results on Jan 23, after the market closes. While its revenues in the quarter are likely to have increased on a year-over-year basis, earnings are expected to have witnessed a decline.

In the last reported quarter, the company’s earnings outpaced the Zacks Consensus Estimate. Higher revenues and growth in loan balances aided results despite higher non-interest expenses.

The company boasts an impressive earnings surprise history. Its earnings surpassed the consensus estimate in each of the trailing four quarters, with a surprise of 12.1%, on average.

SVB Financial Group Price and EPS Surprise

SVB Financial Group Price and EPS Surprise

SVB Financial Group price-eps-surprise | SVB Financial Group Quote

However, activities of the company in the fourth quarter failed to encourage analysts to revise earnings estimates upward. Thus, the Zacks Consensus Estimate for its fourth-quarter earnings has been unchanged at $4.59 over the past seven days. The figure indicates a decline of 9.5% from the year-ago reported number.

The consensus estimate for sales is pegged at $786.8 million, which suggests growth of 12.2% from the prior-year quarter’s reported figure.

Key Estimates for Q4

Net interest income (NII): In the fourth quarter, real estate loans witnessed decent growth. Also, growth in commercial loans (constituting a major part of SVB Financial’s loan portfolio) was soft.

The Zacks Consensus Estimate for average interest earning assets for the fourth quarter is pegged at $65.2 billion, which suggests rise of 4.9% sequentially.

Thus, despite modest loan growth, the decline in interest rates is likely to have hurt the company’s NII to some extent.

Management expects NII to be in low-double digits in 2019. Net interest margin is projected at 3.50-3.60%.

Non-interest income: The fourth quarter witnessed an increase in credit card-related consumer loans. Supported by this, the company’s credit card fee is expected to have risen. The Zacks Consensus Estimate for credit card fees is pegged at $30.59 million, which indicates growth of 1.4% sequentially.

Moreover, on the expectation of rise in deposit balances, service charge on deposits is likely to have been positively impacted. The consensus estimate for the same is $23.05 million, suggesting 2.5% rise from the previous quarter’s reported number.

The company has been witnessing an increase in client investment fund balances over the past few quarters. Thus, on the expectation of rise in fund balances in the fourth quarter as well, client investment fees are likely to have increased. The consensus estimate for client investment fees of $48.37 million suggests 3.6% sequential rise.

The consensus estimate for foreign exchange fees is pegged at $41.51 million, suggesting 3% sequential growth.

Also, the consensus estimate for lending-related fees is pegged at $12 million, indicating rise of 2.5% from the previous quarter. Letters of credit and standby letters of credit fees are estimated to be $11 million in the fourth quarter, suggesting 1.5% sequential growth.

Notably, the company expects core fee income for 2019 to grow in the low-20s. Including the favorable impact of the SVB Leerink acquisition, it is expected to increase in the high-60s.

Expenses: SVB Financial’s expenses are likely to have remained elevated in the fourth quarter because of continued spending on technology system overhaul and investments in franchise.

Notably, the company expects non-GAAP non-interest expenses (excluding expenses related to non-controlling interests) to increase in low-teens in 2019. Including the impact of the SVB Leerink acquisition, it is projected to rise in the mid-30s.

Asset quality: The Zacks Consensus Estimate for allowance for loan losses of $314 million for the fourth quarter suggests an increase of 3.3% from the prior quarter’s reported figure.

Earnings Whispers

Per our quantitative model, the chances of SVB Financial beating the Zacks Consensus Estimate in the fourth quarter are high. This is because it has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better.

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 SVB Financial is +0.65%.

Zacks Rank: The company currently carries a Zacks Rank #3.

Other Stocks to Consider

Here are a few other finance stocks that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat in their upcoming releases.

Associated Banc-Corp ASB is slated to release results on Jan 23. It presently has an Earnings ESP of +0.49% and a Zacks Rank #3.

Prosperity Bancshares, Inc. PB is slated to release results on Jan 29. It currently has an Earnings ESP of +1.35% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Legg Mason, Inc. has an Earnings ESP of +1.59% and a Zacks Rank #2 (Buy) at present. The company is slated to release results on Feb 3.

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