SunTrust Banks, Inc. (STI) is scheduled to announce fourth-quarter and full year 2014 results on Jan 16, before the market opens.
Last quarter, SunTrust’s adjusted earnings marginally lagged the Zacks Consensus Estimate. Notably, results were supported by a rise in revenues and lower expenses.
Will SunTrust be able to sustain its profitability this quarter? Or will it disappoint this time? Let us see how things have shaped up for this announcement.
Factors Impacting Q4 Results
SunTrust will incur an additional legal reserve pertaining to legacy mortgage matters. As a result, the company’s results will include a legal provision expense of $145 million, thereby lowering its earnings by 17 cents per share.
Further, the persistent low interest rate environment will continue to put pressure on net interest margin (“NIM”) which, in turn, is likely to strain SunTrust’s interest income. Management expects fourth-quarter NIM to decline nearly 3 to 6 basis points sequentially, largely due to lower commercial loan swap income.
Also, lower level of mortgage originations should keep mortgage production revenue down. Consequently, overall revenues are expected to remain under pressure.
However, investment banking income growth will likely remain impressive, driven by SunTrust’s strong pipeline at the end of the third quarter. Also, mortgage servicing income should rise in the fourth quarter as the company added roughly $4 billion to its servicing portfolio in the third quarter.
Also, SunTrust has been undertaking cost-saving measures, which showed positive results in the first nine months of 2014. This declining trend in operating expenses should continue in the upcoming release as well, thereby, supporting the bottom line.
Additionally, SunTrust anticipates loan loss provision expenses to remain stable in the quarter as continued strong asset quality will likely offset positive loan growth.
SunTrust’s activities during the quarter failed to win analysts’ confidence. The Zacks Consensus Estimate for the quarter fell 1.3% to 79 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. That 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 -5.06%. This is because the Most Accurate estimate of 75 cents per share is below the Zacks Consensus Estimate of 79 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 to be sure of 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 First Republic Bank (FRC) is +1.39% and it carries a Zacks Rank #3. The company is slated to release results on Jan 15.
The PNC Financial Services Group, Inc. (PNC) has an Earnings ESP of +1.15% and a Zacks Rank #3. It is scheduled to report on Jan 16.
Associated Banc-Corp (ASB) has an Earnings ESP of +3.33% and a Zacks Rank #3. The company will report results on Jan 22.
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