Northern Trust Corporation (NTRS) is scheduled to report its fourth-quarter 2014 results on Wednesday, Jan 21.
In the last quarter, this banking giant reported year-over-year earnings growth of 10.5%. However, results missed the Zacks Consensus Estimate. Top-line growth, absence of provision for credit losses and rise in both assets under custody and assets under management were positives for the quarter. However, higher operating expenses were on the downside.
Is Northern Trust likely to fail in delivering earnings beat this season? Let’s see how things have shaped up.
Factors to Influence Fourth-quarter Results
Northern Trust continues to invest in new business in order to augment revenue growth, which is lagging due to low interest rates and operating leverage challenges amid the difficult economic environment.
We observe that the company’s operating environment has been significantly impacted by the persistent low net interest scenario. The company has failed to exhibit steady growth in net interest income over the last few quarters. Further, it has been experiencing a declining trend in net interest margin (NIM) since 2009 and has not been able to reverse the trend in the recent quarters. Given the absence of any significant turnaround in the fourth quarter, NII and NIM are expected to remain under pressure.
Further, amid a competitive environment and stringent regulatory landscape, expense management has become a priority for financial institutions. Though Northern Trust has cost control initiatives in place, it is still facing challenges in controlling expenses.
However, continued growth in non-interest income and declining provision for credit losses are encouraging traits. Trust, Investment and Other Servicing Fees, constituting a major source of non-interest income, relates to assets under management, custody and service. Given a favorable equity and asset market backdrop, we expect these fees to drive revenue growth in this quarter as well.
In 2014, the company established internal productivity targets on both the revenue and expense side. Management expects this next round of productivity efforts to continue to improve the financial performance in a sustainable way, with other factors remaining constant. Notably, it expects 200 of the announced layoffs to yield $25 million of annual savings and should benefit on a phase-in basis in 2015.
Activities of Northern Trust during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter declined 1.2% to 80 cents per share over the last seven days.
Earnings Whispers
Our proven model does not conclusively show that Northern Trust is likely to beat the Zacks Consensus Estimate in the upcoming release. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The Earnings ESP for Northern Trust is -2.47%. This is because the Most Accurate estimate of 79 cents is below the Zacks Consensus Estimate of 81 cents per share.
Zacks Rank: Northern Trust’s Zacks Rank #3 (Hold), increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise call.
Stocks That Warrant a Look
Here are some stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
BancorpSouth, Inc. (BXS) has an earnings ESP of +3.23% and a Zacks Rank #2. It is scheduled to report results on Jan 21.
Associated Banc-Corp (ASB) has an earnings ESP of +3.33% and carries a Zacks Rank #3. It is expected to report its fourth-quarter results on Jan 22.
CIT Group Inc. (CIT) has an earnings ESP of +5.38% and a Zacks Rank #1. It is slated to report results on Jan 27.
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