We anticipate Zions Bancorporation (ZION) to beat earnings expectations when it reports fourth-quarter and full-year 2014 results on Jan 26, after the market closes.
Why a Likely Positive Surprise?
Our proven model shows that Zions is likely to beat earnings as it has the right combination of two key components. Note that 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) to have a significantly higher chance of beating earnings.
Zacks ESP: The Earnings ESP for Zions is +2.33%. This is because the Most Accurate estimate of 44 cents is above the Zacks Consensus Estimate of 43 cents.
Zacks Rank: Zions’ Zacks Rank #3 increases the predictive power of ESP. The combination of the company’s Zacks Rank #3 and a positive ESP makes us confident of an earnings beat.
Factors to Drive Q4 Results
Zions’ net interest income (NII) has been under considerable pressure due to the persistent low interest rate environment, FDIC supported loan and low yield loans. However, even though the above-mentioned factors weigh on interest income, management expects NII to increase slightly owing to the anticipated money market investments in high-quality liquid assets and debt reductions.
Moreover, management foresees a modest upward trend in the core components of non-interest income such as service fees, given the company’s enhanced efforts to drive organic growth and fee income. The favorable outlook for NII as well as non-interest income indicates an easing of the strained top line in this quarter. Also, management expects net interest margin to increase by 10 basis points in this quarter as a result of debt extinguishment.
Further, expenses reflected a mixed picture in the first nine months of 2014. Better cost control in the first half boosted profitability, while elevated costs dragged results lower in the third quarter.
In the upcoming release, management predicts non-interest expenses to remain stable with the previously provided guidance of $400–$405 million per quarter. The rise in costs related to loan, deposit and accounting systems upgrade will likely be offset by lower credit-related expenses and FDIC indemnification asset amortization.
In addition, the company’s improving credit quality will work in its favor. Management expects provisions to remain modestly negative in this quarter. Further, consistent growth in deposits is expected to propel revenue generation.
Zions’ activities during the quarter were not adequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate remained unchanged at 43 cents per share over the last 7 days.
Stocks to Consider
Zions is not the only firm looking up this earnings season. We are likely to see earnings beats coming from the following finance stocks as well:
The Earnings ESP for The Chubb Corporation (CB) is +1.39% and it has a Zacks Rank #1. The company is slated to report on Jan 29.
CIT Group Inc. (CIT) has an earnings ESP of +5.38% and carries a Zacks Rank #2. It is scheduled to release results on Jan 27.
The Allstate Corporation (ALL) has an earnings ESP of +1.81% and a Zacks Rank #1. It is scheduled to report results on Feb 4.
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