Will BB&T (BBT) Q2 Earnings Disappoint on Higher Costs? - Analyst Blog

BB&T Corporation BBT is scheduled to report its second quarter 2015 results on Jul 16, before the market opens.

Last quarter, earnings per share lagged the Zacks Consensus Estimate. Lower-than-expected results were triggered by a rise in operating expenses and higher provision for loan losses. However, these were partially offset by higher revenues.

BB&T recorded an earnings beat in one of the trailing last four quarters with an average negative surprise of 1.36%.

Is BB&T likely to miss on earnings this quarter? Let’s see how things have shaped up for this announcement.

Factors Influencing Q2 Results

The strain on BB&T’s top-line growth is expected to continue in the quarter as indicated by management’s forecast of a decline of 6–8 basis points in net interest margin (NIM) owing to a consistent runoff of acquired assets and lower purchase accounting accretion. Also, the company expects lower yields from new loans and increasing competition to result in lower core margin in the upcoming release.

Though compressed NIM will likely weigh slightly on net interest income, the company expects improvement in all major fee items. Moreover, the pressure anticipated on revenue generation this quarter is expected to ease slightly as BB&T predicts the amount of FDIC loss share account to decline about $10–$15 million per quarter during the year.

Further, consistent growth in loans and non-interest bearing deposits is expected to provide support to the overall organic growth strategy of the company. Management anticipates average loans to grow in the range of 3–5% (7–9% excluding mortgage) annualized in the quarter, driven by an improvement in corporate, retail lending and CRE segments.

On the other hand, the company’s profitability is expected to remain under pressure due to elevated costs. Management projects non-interest expenses to rise by 2–4% in the upcoming release on the back of production related incentives, professional and IT services costs, annual merit increases and acquisitions. Further, the company expects to achieve positive operating leverage in the quarter.

On the credit quality front, management expects net charge-offs to remain within 0.35%–0.40%, provided the economic scenario remains relatively stable. Going forward, management does not anticipate any further reserve release and expects nonperforming assets to remain stable.

Activities of BB&T during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter remained flat at 68 cents per share over the last 7 days.

Earnings Whispers

Our proven model does not conclusively show that BB&T is likely to beat the Zacks Consensus Estimate in the second 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 BB&T is -1.47%. This is because the Most Accurate estimate of 67 cents per share is below the Zacks Consensus Estimate of 68 cents per share.

Zacks Rank: BB&T’s Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise call.

Stocks That Warrant a Look

Here are a few finance 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.

Progressive Corp. PGR has an Earnings ESP of +1.85% and carries a Zacks Rank #2. It is scheduled to report results on Jul 17.

SVB Financial Group SIVB has an Earnings ESP of +5.44% and a Zacks Rank #1. The company will report results on Jul 23.

MarketAxess Holdings Inc. MKTX has an Earnings ESP of +1.61% and a Zacks Rank #1. It is scheduled to report on Jul 22.

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