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Lower Interest Rates to Hurt State Street's (STT) Q1 Earnings
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State Street (STT - Free Report) is scheduled to report first-quarter 2020 results on Apr 17, before market open. While its revenues are expected to have declined in the quarter, earnings are likely to have witnessed year-over-year improvement.
In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Results benefited from lower expenses, growth in assets and modest improvement in fee income, partly offset by a decline in net interest income (NII).
State Street boasts an impressive earnings surprise history. The company’s earnings have surpassed the Zacks Consensus Estimate in all of the trailing four quarters, with a positive surprise of 8.2%, on average.
However, its activities in the first quarter failed to encourage analysts to revise earnings estimates upward. The Zacks Consensus Estimate for State Street’s earnings of $1.35 for the quarter has been revised 2.2% lower over the past seven days. The figure indicates a rise of 8.9% from the year-ago quarter’s reported number.
The consensus estimate for first-quarter sales is pegged at $2.90 billion, indicating a 1.1% year-over-year decline.
Now, let’s check the factors that are likely to have impacted State Street’s first-quarter performance.
Key Factors to Note
NII likely to decline: The overall lending scenario remained decent in the quarter. Moreover, the Zacks Consensus Estimate for the company’s average interest earning assets of $203.3 billion for the first quarter suggests a rise of 11.8% from the prior quarter’s reported number. Despite decent growth in loans, State Street’s NII is expected to have been negatively impacted in the quarter due to lower interest rates.
In fact, the Federal Reserve’s decision to cut rates to near-zero in March to support the U.S. economy from the coronavirus-induced slowdown might have hurt margins to an extent.
Management expects NII in the quarter to decline almost 5% from the prior quarter. Moreover, the Zacks consensus estimate for NII is pegged at $602 million, suggesting a decline of 5.3% sequentially.
Fee income may not offer much support: The first quarter witnessed a sequential rise in foreign exchange (FX) trading volatility and FX volumes. Given this, the company’s FX trading revenues are expected to have improved.
However, owing to weak equity market performance along with a decline in assets, servicing and management fees are expected to have been negatively impacted in the to-be-reported quarter. The consensus estimate for servicing fees of $1.3 billion indicates a decline of 3% sequentially. Likewise, the consensus estimate for management fees of $437 million indicates a 6% decline from the prior quarter.
Further, while the spread between the three-month LIBOR and the Fed funds rate expanded in the quarter, the amount of securities on loans declined. Owing to this, securities finance revenues are likely to have been sequentially stable.
Total fee revenues are projected to decline 2-3% sequentially, given headwinds such as the expected asset mix shift by a single client in asset management and seasonally lower CRD revenues.
Expenses likely to be manageable: State Street’s expenses have remained elevated over the past few quarters mainly due to higher Information systems and communications expenses as well as acquisition and restructuring costs.
Nevertheless, driven by the company’s expense-saving program, overall costs are expected to have been manageable in the first quarter. Management expects expenses to be down nearly 1% year over year.
Earnings Whispers
According to our quantitative model, chances of State Street beating the Zacks Consensus Estimate this time 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 — which is required 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 0.00%.
Zacks Rank: The company currently carries a Zacks Rank #4 (Sell).
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 in their upcoming releases, per our model.
The Earnings ESP for Carolina Financial Corporation is +1.43% and it carries a Zacks Rank of 3 currently. The company is expected to report quarterly numbers in the coming days.
Earnings ESP for Credit Acceptance Corporation (CACC - Free Report) is +11.28% and it currently carries a Zacks Rank of 3. The company is expected to report quarterly numbers on May 4.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
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Lower Interest Rates to Hurt State Street's (STT) Q1 Earnings
State Street (STT - Free Report) is scheduled to report first-quarter 2020 results on Apr 17, before market open. While its revenues are expected to have declined in the quarter, earnings are likely to have witnessed year-over-year improvement.
In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Results benefited from lower expenses, growth in assets and modest improvement in fee income, partly offset by a decline in net interest income (NII).
State Street boasts an impressive earnings surprise history. The company’s earnings have surpassed the Zacks Consensus Estimate in all of the trailing four quarters, with a positive surprise of 8.2%, on average.
State Street Corporation Price and EPS Surprise
State Street Corporation price-eps-surprise | State Street Corporation Quote
However, its activities in the first quarter failed to encourage analysts to revise earnings estimates upward. The Zacks Consensus Estimate for State Street’s earnings of $1.35 for the quarter has been revised 2.2% lower over the past seven days. The figure indicates a rise of 8.9% from the year-ago quarter’s reported number.
The consensus estimate for first-quarter sales is pegged at $2.90 billion, indicating a 1.1% year-over-year decline.
Now, let’s check the factors that are likely to have impacted State Street’s first-quarter performance.
Key Factors to Note
NII likely to decline: The overall lending scenario remained decent in the quarter. Moreover, the Zacks Consensus Estimate for the company’s average interest earning assets of $203.3 billion for the first quarter suggests a rise of 11.8% from the prior quarter’s reported number. Despite decent growth in loans, State Street’s NII is expected to have been negatively impacted in the quarter due to lower interest rates.
In fact, the Federal Reserve’s decision to cut rates to near-zero in March to support the U.S. economy from the coronavirus-induced slowdown might have hurt margins to an extent.
Management expects NII in the quarter to decline almost 5% from the prior quarter. Moreover, the Zacks consensus estimate for NII is pegged at $602 million, suggesting a decline of 5.3% sequentially.
Fee income may not offer much support: The first quarter witnessed a sequential rise in foreign exchange (FX) trading volatility and FX volumes. Given this, the company’s FX trading revenues are expected to have improved.
However, owing to weak equity market performance along with a decline in assets, servicing and management fees are expected to have been negatively impacted in the to-be-reported quarter. The consensus estimate for servicing fees of $1.3 billion indicates a decline of 3% sequentially. Likewise, the consensus estimate for management fees of $437 million indicates a 6% decline from the prior quarter.
Further, while the spread between the three-month LIBOR and the Fed funds rate expanded in the quarter, the amount of securities on loans declined. Owing to this, securities finance revenues are likely to have been sequentially stable.
Total fee revenues are projected to decline 2-3% sequentially, given headwinds such as the expected asset mix shift by a single client in asset management and seasonally lower CRD revenues.
Expenses likely to be manageable: State Street’s expenses have remained elevated over the past few quarters mainly due to higher Information systems and communications expenses as well as acquisition and restructuring costs.
Nevertheless, driven by the company’s expense-saving program, overall costs are expected to have been manageable in the first quarter. Management expects expenses to be down nearly 1% year over year.
Earnings Whispers
According to our quantitative model, chances of State Street beating the Zacks Consensus Estimate this time 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 — which is required 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 0.00%.
Zacks Rank: The company currently carries a Zacks Rank #4 (Sell).
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 in their upcoming releases, per our model.
BCB Bancorp, Inc. (NJ) (BCBP - Free Report) is expected to release quarterly results soon. The company has an Earnings ESP of +4.17% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Earnings ESP for Carolina Financial Corporation is +1.43% and it carries a Zacks Rank of 3 currently. The company is expected to report quarterly numbers in the coming days.
Earnings ESP for Credit Acceptance Corporation (CACC - Free Report) is +11.28% and it currently carries a Zacks Rank of 3. The company is expected to report quarterly numbers on May 4.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>