Regions Financial Corporation (RF) is scheduled to report its fourth-quarter 2014 results before the opening bell on Tuesday, Jan 20.
In the last quarter, this banking giant delivered a 4.76% positive earnings surprise beating the Zacks Consensus Estimate. Better-than-expected results were driven by reduced non-interest expenses and increase in loans and deposits. Moreover, in the four trailing quarters, Regions posted an average positive surprise of 4.94%.
Will Regions be able to beat earnings after combating the challenges that the industry witnessed during the quarter? Let's see what factors might have influenced the earnings report this time around.
Factors to Drive Q4 Results
The unfavorable macro issues may weigh on Regions’ top line and balance sheet in the quarter. Among others, a dismal mortgage market, weak loan growth and stringent regulatory norms in a persistently low interest rate environment are the primary dampeners. Moreover, litigation costs related to recent settlements might drive down profitability.
However, Regions has some encouraging traits that may support its results. The company’s favorable funding mix, improved core business performance along with its expansion mode and strategies are impressive. It also aims to control costs and improve long-term profitability.
What Management Expects?
Though management expects margin compression in the near term on account of a low interest rate scenario and competitive pricing environment for assets, loan growth is expected to aid net interest income.
Given the company’s previously announced posting order process for customer deposit accounts, decline in fee income between $10 million to $15 million each quarter is anticipated. We believe this will further weigh on total non-interest income, thereby restricting top-line growth.
Further, the company anticipates adjusted expenses in 2014 to decline from the 2013 level and efficiency ratio in the low 60s range.
Activities of Regions during the fourth quarter of the year were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter remained stable at 21 cents per share over the last seven days.
Earnings Whispers
Our proven model shows that Regions is likely to miss the Zacks Consensus Estimate in the fourth quarter. 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. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The earnings ESP for Regions is -9.52%. This is because the Most Accurate estimate of 19 cents is below the Zacks Consensus Estimate by 2 cents.
Zacks Rank: Regions’ Zacks Rank #4 (Sell) further lowers the predictive power of ESP.
Stocks That Warrant a Look
Here are some 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 The PNC Financial Services Group, Inc. (PNC) is +1.15% and it carries a Zacks Rank #3. The company is scheduled to release its fourth-quarter results on Jan 16.
First Horizon National Corporation (FHN) has an Earnings ESP of +5.88% and carries a Zacks Rank #3. It is scheduled to report results on Jan 23.
Bank of Hawaii Corporation (BOH) has an earnings ESP of +1.08% and carries a Zacks Rank #3. It is expected to report its fourth-quarter results on Jan 26.
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