KeyCorp. KEY is scheduled to report third-quarter 2015 results on Thursday, Oct 15, before the opening bell.
The Ohio-based bank delivered a negative surprise of 3.57% in the prior quarter. The year-over-year improvement in revenues during the quarter was more than offset by higher expenses and a significant increase in provisions.
The company has delivered an average positive earnings surprise of 1.03% in the trailing four quarters.
Will KeyCorp miss on earnings in this quarter as well? Or will it be able to turn tables? Let’s see how things have shaped up prior to this announcement.
Factors Likely to Impact Q3 Results
One of the positive factors that worked for the banking industry during the third quarter was consistent growth in loan balances driven by steady demand for commercial and real estate loans. However, slowdown in the energy sector might have dampened the demand for commercial and industrial loans.
We expect KeyCorp’s financials to reflect these industry trends. Notably, growth in loans will likely lead to higher net interest income and thereby, add to the company’s organic growth in the quarter.
However, Key Corporate Bank, which generates roughly 40% of the company’s total revenue, has had a challenging quarter, thanks to heightened volatility witnessed over the past couple of months. Such volatility has considerably subdued the demand for debt and equity products as well as syndicated finance.
Nevertheless, we expect lower rates to drive higher mortgage banking revenues led by increased refinancing activities. Besides, a substantial rise in mergers and acquisitions during the third quarter is projected to result in higher investment banking and advisory fees for KeyCorp.
Further, the bank’s mounting expenses will likely be a headwind in the third quarter, as performance-based compensation and costs associated with the acquisition of Pacific Crest Securities continue to push expenses higher.
KeyCorp’s management projects net interest margin to fall in mid-single digits (basis points or bps) from the preceding quarter. Further, it anticipates a sequential fall in investment banking revenues. The same is, however, estimated to increase on a year-over-year basis.
Also, net charge-offs are expected to come below the targeted range of 40−60 bps.
KeyCorp’s activities during the quarter failed to win analysts’ confidence. As a result, the Zacks Consensus Estimate has remained stable at 27 cents per share over the past 7 days.
Earnings Whispers
Our proven model does not conclusively show that KeyCorp is likely to beat the Zacks Consensus Estimate in the third 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 KeyCorp is -3.70%. This is because the Most Accurate estimate of 26 cents per share stands below the Zacks Consensus Estimate of 27 cents.
Zacks Rank: KeyCorp’s Zacks Rank #4 (Sell) further lessens the chance of an earnings surprise.
Stocks to Consider
Here are a few finance 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 PNC Financial Services Group, Inc. PNC has an Earnings ESP of +1.12% and carries a Zacks Rank #3. The company is scheduled to report on Oct 14.
Wintrust Financial Corporation WTFC is also slated to release results on Oct 14. The company has an Earnings ESP of +2.35% and carries a Zacks Rank #3.
SunTrust Banks, Inc. STI has an Earnings ESP of +1.21% and carries a Zacks Rank #3. It is scheduled to report on Oct 16.
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