Fifth Third Bancorp FITB is scheduled to report first-quarter 2015 results on Apr 21, 2015, before the opening bell.
Why a Likely Positive Surprise?
Our proven model shows that Fifth Third 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 BB&T is +2.70%. This is because the Most Accurate estimate of 38 cents stands above the Zacks Consensus Estimate of 37 cents.
Zacks Rank: Fifth Third’s Zacks Rank #3 (Hold) 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 Q1 Results
While Fifth Third’s management expects a seasonal decline in fees during the first quarter of 2015, we expect such fees to drive decent revenues. Also, increased volatility and a pickup in M&A and IPO activities are projected to considerably boost lending and investment advisory income. Moreover, a surge in refinance activities led by drop in mortgage rates during the quarter is expected to result in improved mortgage revenues.
However, we do not predict a similar trend for net interest income, which is likely to suffer a hit of $20–25 million due to the company’s discontinuation of direct deposit advance services amid increasing regulatory scrutiny, and inclusion of $12 million negative impact from day count. Moreover, margins will likely stay contracted, given elevated cash levels and prevailing low rate environment.
In addition, as seasonal factors including marketing and unemployment costs come into play, the company’s expense level is anticipated to mount, straining bottom-line expansion.
Nonetheless, Fifth Third’s continued reduction of its exposure to commercial real estate will likely lead to lower loan servicing costs, and help keep provisions down during the quarter.
Overall, we expect Fifth Third’s results to benefit from improved trading and investment banking business, as well as a modest pickup in consumer and commercial loan demand witnessed during the quarter. However, higher expense and subdued net interest income can potentially challenge its bottom-line growth.
Fifth Third’s activities during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter declined 2.6% to 37 cents per share over the last 7 days.
Stocks that Warrant a Look
Here are some other 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:
The Earnings ESP for T. Rowe Price Group, Inc. TROW is +0.89% and it carries a Zacks Rank #3. The company is slated to release first-quarter results on Apr 22.
BankUnited, Inc. BKU has an Earnings ESP of +2.27% and carries a Zacks Rank #3. The company is scheduled to release results on Apr 23.
The Earnings ESP for Popular, Inc. BPOP is +9.86% and it sports a Zacks Rank #1. The company is scheduled to release results on Apr 27.
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