We expect SunTrust Banks, Inc. (STI) to beat expectations when it reports third-quarter 2014 results on Oct 17, before the market opens.
Why a Likely Positive Surprise?
Our proven model shows that SunTrust is likely to beat earnings because it has the right combination of two key components.
Positive Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +7.32%. This is very meaningful and a leading indicator of a likely positive earnings surprise for the company.
Zacks Rank #3 (Hold): Note that stocks with Zacks Ranks #1 (Strong Buy), 2 (Buy) and 3 (Hold) have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of SunTrust’s Zacks Rank #3 and an ESP of +7.32% makes us confident of an earnings beat. Moreover, SunTrust delivered positive earnings surprise in three out of the trailing four quarters, with an average earnings beat of 6.39%.
Factors to Drive Q3 Results
SunTrust has been taking cost-saving measures which showed positive results in the first-half of 2014. This declining trend in operating expenses should continue in the upcoming quarter and will support the bottom line.
Further, non-interest income should increase in the coming quarter. Investment banking income and mortgage servicing income which are witnessing a rising trend should drive the non-interest income. However, new mortgage origination-related income is likely to offset it to some extent.
However, the persistent low interest rate environment is anticipated to put pressure on net interest margin which, in turn, is likely keep SunTrust’s top line under strain. Also, sluggish demand for loans will add to its woes.
SunTrust’s activities during the quarter were inadequate to win analysts’ confidence. The Zacks Consensus Estimate for the quarter remained unchanged at 82 cents per share over the last 7 days.
Other Stocks to Consider
SunTrust is not the only firm looking up this earnings season. We also expect earnings beats from other companies in this industry:
World Acceptance Corp. (WRLD) has an Earnings ESP of +1.38% and carries a Zacks Rank #2. The company is slated to release results on Oct 22.
Arlington Asset Investment Corp. (AI) has an Earnings ESP of +7.34% and sports a Zacks Rank #1. It is scheduled to report results on Oct 27.
CIT Group Inc. (CIT) has an Earnings ESP of +3.37% and a Zacks Rank #3. It is slated to report results on Oct 28.
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