SunTrust Banks, Inc. STI is slated to release third-quarter 2015 results on Friday Oct 16, before the market opens.
Last quarter, SunTrust’s earnings outpaced the Zacks Consensus Estimate by 9.88%. Results benefited from a decrease in expenses and provisions, partly offset by lower revenues. Moreover, the company recorded an average positive surprise of 6.75% for the trailing four quarters.
Will SunTrust be able to maintain its earnings streak in this quarter? Or will it succumb to revenue pressure?
Let us see what our model indicates:
Our proven model shows that SunTrust has the right combination of two key ingredients to beat earnings this time too.
Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +1.21%. This is a meaningful and leading indicator of a likely positive earnings surprise for the company.
Zacks Rank: SunTrust carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings. The sell-rated stocks (with Zacks Rank #4 or #5) should never be considered going into an earnings announcement.
The combination of SunTrust’s Zacks Rank #3 and ESP of +1.21% makes us confident of an earnings beat.
Factors to Influence Results
SunTrust remains undeterred in its efforts to improve operational efficiency and control expenses. This, we believe, will help lower expenses for the quarter. Further, the absence of major legal costs will act as a tailwind.
On the revenue front, aided by a rise in mortgage originations, mortgage production revenues should continue to trend higher in the quarter. In the same way, investment banking revenues will also grow, driven by a large number of M&A activities; while a declining IPO market might offset the gain to some extent.
However, overall trading income will remain low, as fixed-income-related trading declined in the quarter owing to unprecedented volatility in the market. Further, due to a still low interest rate environment, SunTrust’s net interest margin (“NIM”) will face considerable strain. Notably, the company expects NIM to remain stable on the back of balance sheet management initiatives undertaken during the second quarter, which will be, however, largely offset by lower C&I loan yields.
Additionally, management expects provision for loan losses to increase during the quarter. We believe this will be largely due to SunTrust’s energy loan exposure.
Nevertheless, SunTrust’s activities during the quarter were inadequate to win analysts’ confidence. The Zacks Consensus Estimate for the quarter remained unchanged at 83 cents per share over the last 7 days.
Other Stocks to Consider
You may want to consider a few other banking stocks, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming announcements.
M&T Bank Corporation MTB has an Earnings ESP of +1.52% and a Zacks Rank #3. The company will announce results on Oct 16.
The Bank of New York Mellon Corporation BK has an Earnings ESP of +1.39% and carries a Zacks Rank #3. It is slated to release results on Oct 20.
Capital One Financial Corporation COF has an Earnings ESP +3.14% and carries a Zacks Rank #3. It is scheduled to report results on Oct 22.
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