SunTrust Banks, Inc. STI is scheduled to announce first-quarter 2015 results on Apr 20, before the market opens.
Last quarter, SunTrust’s adjusted earnings outpaced the Zacks Consensus Estimate. Notably, results were supported by lower provisions as well as growth in loans and deposits.
Will SunTrust be able to sustain earnings beat this quarter? Or will it disappoint? Let us see how things have shaped up for this announcement.
Factors Impacting Q1 Results
Driven by a persistent low interest rate environment, SunTrust’s net interest margin (NIM) has been under considerable strain. This pressure is expected to continue in this quarter as well as the company expects NIM to fall nearly 7–9 basis points (bps) sequentially, mainly due to lower commercial loan swap income.
The compression on margin, in turn, is likely to strain SunTrust’s interest income. Net interest income is projected to decline nearly $50 million sequentially in the upcoming release. Also, lower level of mortgage originations should keep mortgage production revenue down. Consequently, overall revenues are expected to remain under pressure.
Moreover, though SunTrust remains undeterred in its efforts to achieve improved efficiency and reduce costs, expenses this year are expected to remain stable with the 2014 level as more focus will be on improvement in the revenue front. Notably, personnel expenses are expected to increase nearly $100 million in this quarter.
On the credit quality front, management anticipates further decline in nonperforming loans at a moderate pace driven by the residential portfolio, while provision for loan losses and net charge-offs are expected to remain stable. With gradual recovery of the overall economy, we expect the upcoming release to reflect improvement in asset quality.
SunTrust’s activities during the quarter failed to win analysts’ confidence. The Zacks Consensus Estimate for the quarter remained unchanged at 72 cents per share over the last 7 days.
Earnings Whispers
Our proven model does not conclusively show that SunTrust 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. This is not the case here as illustrated below.
Zacks ESP: The Earnings ESP for SunTrust is -1.39%. This is because the Most Accurate estimate of 71 cents per share is below the Zacks Consensus Estimate of 72 cents per share.
Zacks Rank: SunTrust’s Zacks Rank #3 increases the predictive power of ESP. However, you need to have a positive Earnings ESP for expecting an earnings beat.
Stocks to Consider
Here are a few banking stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming announcements.
The Earnings ESP for AXIS Capital Holdings Limited AXS is +13.56% and it carries a Zacks Rank #1. The company is slated to release results on Apr 29.
SVB Financial Group SIVB has an Earnings ESP of +2.24% and a Zacks Rank #1. The company will report results on Apr 23.
Primerica, Inc. PRI has an Earnings ESP of +8.54% and a Zacks Rank #2. It is scheduled to report on May 6.
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