We expect BB&T Corporation (BBT) to beat earnings expectations when it reports third-quarter 2014 results before the opening bell on Oct 16.
Why a Likely Positive Surprise?
Our proven model shows that BB&T is likely to beat earnings because it has the right combination of two key components.
Positive Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +1.41%. This is very meaningful and a leading indicator of a likely positive earnings surprise for the company.
Zacks Rank #3 (Hold): Note that stocks with a Zacks Ranks #1 (Strong Buy), 2 (Buy) and 3 (Hold) have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of BB&T’s Zacks Rank #3 and ESP of +1.41% makes us confident of an earnings beat. If BB&T succeeds in beating the estimates in this quarter, it will reverse the trend seen in the trailing four quarters that witnessed an average negative surprise of 0.91%.
Factors to Drive Q3 Results
We believe BB&T is well poised to deliver strong results this quarter on the back of consistent growth in loans and non-interest bearing deposits. The company expects average loans to increase in the range of 3%–5%, driven by improvement in commercial & industrial loan, CRE income, construction loans and other lending subsidiaries.
Further, BB&T continues to focus on cost reduction and anticipates expenses to be under $1.4 billion in the second half of 2014, triggered by lower personnel and regulatory expenses. This effective cost control should compensate for the pressurized top line, to an extent. Also, the purchase of 21 branches from Citigroup Inc. (C) in the second quarter is expected to contribute to revenues as well as expenses.
However, management’s expectation of a decline in net interest margin owing to continued low rate environment and stable revenue generation indicates a stressed top line in the quarter.
Activities of BB&T during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter remained stable at 71 cents per share over the last 7 days.
Stocks That Warrant a Look
BB&T is not the only firm looking up this earnings season. We are likely to see earnings beats coming from these two finance stocks as well:
The Earnings ESP for Arlington Asset Investment Corp. (AI) is +7.34% and it has a Zacks Rank #1. The company is slated to release results on Oct 27.
The Goldman Sachs Group, Inc. (GS) has an Earnings ESP of +1.25% and a Zacks Rank #3. It is slated to report results on Oct 16.
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