- 22 января 2018, 16:06
- Zacks Investment Research
State Street Corporation STT is scheduled to report fourth-quarter and 2017 results before the market opens on Jan 23. Its quarterly earnings and revenues are expected to grow year over year.
Last quarter, an increase in revenues drove the company’s operating earnings growth. In fact, the number outpaced the Zacks Consensus Estimate. However, higher expenses and a decline in trading servicing fees were the downsides.
State Street boasts an impressive earnings surprise history. The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters with an average beat of 8.3%.
Also, activities of the company during the fourth quarter encouraged analysts to revise estimates upward. Thus, the Zacks Consensus Estimate for earnings for the to-be-reported quarter increased 1.2% to $1.71 over the last 30 days. Also, the figure represents a year-over-year improvement of 15.5%.
The Zacks Consensus Estimate for sales is $2.98 billion for the quarter, reflecting 17.7% year-over-year growth.
Factors to Influence Q4 Results
Stable net interest income (NII): The Zacks Consensus Estimate for average interest earning assets of $186.9 billion for the quarter represents a decline of 6.2% year over year. Further, overall lending activities were decent in the quarter. This, along with higher interest rates is expected to boost the company’s NII, but lower interest earning assets are likely to offset this gain to some extent.
Notably, management expects NII to be relatively stable sequentially on the assumption of a slightly smaller balance sheet. Net interest margin is projected to increase a few basis points, driven by asset repricing and continued liability management.
For 2017, management projects NII to be in the $2.43-$2.45 billion range. This takes into consideration interest rate expectations across the curve and currencies. Apart from this, NII growth will depend on the size of balance sheet, client deposit behavior, balance sheet management activity and the impact of FX swap costs.
Balance sheet is expected to modestly decline in 2017, owing to lower client deposits and a fall in wholesale CD levels along with decrease in the average earning assets of roughly 0% to 5%.
Muted fee revenue growth: Driven by the benefits of the acquired GE Asset Management business, management fees are likely to improve in the to-be-reported quarter. Also, on a sequential basis, management expects servicing fees to rise. However, lower market volatility is expected to lower trading revenues.
In 2017, fee revenues (on an operating basis) are projected to increase above the 6-7% range. This was based on the assumptions of the market conditions as of October 2017, the U.S. dollar remaining stable relative to major currencies and benefits from GE Asset Management deal.
Modest rise in expenses: Management expects operating expenses to rise slightly from the third-quarter level, mainly due to costs associated with new business activity. Expense level will also be dependent on the revenue backdrop in the quarter and the onboarding of new clients.
For 2017, the company anticipates State Street Beacon expense savings of at least $140 million to partially offset expenses to support new business, continued business investments, and merit and depreciation increases.
Here is what our quantitative model predicts:
State Street does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — 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.
Zacks ESP: The Earnings ESP for State Street is -0.15%.
Zacks Rank: State Street has a Zacks Rank #3, which increases the predictive power of ESP. But we also need to have a positive ESP to be confident of a positive earnings surprise.
Stocks That Warrant a Look
Here are a few stocks you may want to consider, as according to our model, these have the right combination of elements to post an earnings beat this quarter.
Synovus Financial Corp. SNV is slated to release fourth-quarter results on Jan 23. It has an Earnings ESP of +0.23% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Associated Banc-Corp ASB is slated to report results on Jan 25. It has an Earnings ESP of +0.64% and a Zacks Rank #1.
T. Rowe Price Group, Inc. TROW has an Earnings ESP of +1.49% and a Zacks Rank of 1. It is scheduled to report results on Jan 30.
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