We expect BB&T Corporation (BBT) to beat earnings expectations when it reports fourth-quarter and full year 2014 results before the opening bell on Jan 22.
Why a Likely Positive Surprise?
Our proven model shows that BB&T is likely to beat earnings as it has the right combination of two key components. Note that 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) to have a significantly higher chance of beating earnings.
Zacks ESP: The Earnings ESP for BB&T is +1.37%. This is because the Most Accurate estimate of 74 cents is above the Zacks Consensus Estimate of 73 cents.
Zacks Rank: BB&T’s Zacks Rank #3 (Hold) increases the predictive power of ESP. The combination of the company’s Zacks Rank #3 and a positive ESP makes us confident of an earnings beat.
Factors to Drive Q4 Results
Consistent growth in loans and non-interest bearing deposits will likely aid BB&T in reporting better results this quarter. Though the company anticipates average loans to be 1–2% lower on an annualized basis due to a decline in residential mortgage balance and reduced auto loan sale, average loans are expected to grow 1–2% after excluding mortgage loans.
Moreover, improvement in retail lending and CRE income is expected to lift the company’s performance while growth in lending subsidiaries will likely be affected due to seasonality.
BB&T continues to focus on cost reduction and anticipates expenses to be under $1.4 billion in this quarter, triggered by a reduction in personnel and regulatory expenses as well as lower loan-related expenses and operating charge-offs.
Further, management predicts a slight decline in non-performing assets in the upcoming release, while net charge-offs are expected to remain within 0.45%–0.50%, provided the economic scenario remains relatively stable.
However, management’s forecast of a fall of 3–5 basis points in net interest margin owing to pressurized yields and covered asset run-off along with subdued net interest income (on sequential basis) indicates a stressed top line in the quarter. While core margin is expected to remain flat, fee income is anticipated to grow modestly.
The company might fall short of meeting its target to achieve an efficiency ratio of around 57%, given the still low interest rate environment. Nonetheless, the company’s effective cost control and anticipated positive operating leverage in this quarter should compensate for the pressurized top line, to an extent.
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 73 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 the following finance stocks as well:
The Earnings ESP for Federated Investors, Inc. (FII) is +2.63% and it has a Zacks Rank #2. It is scheduled to report results on Jan 22.
BancorpSouth, Inc. (BXS) has an Earnings ESP of +3.23% and a Zacks Rank #2. It is slated to report results on Jan 21.
CIT Group Inc. (CIT) has an earnings ESP of +5.38% and carries a Zacks Rank #1. It is scheduled to release results on Jan 27.
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