4 Banks Poised for an Earnings Beat
As a broader part of the financial sector, U.S. banks & thrifts draw significant attention. Since the beginning of 2014, the backdrop has been tough for the banks with weak consumer and corporate activities, lackluster mortgage banking activities, soft trading volumes and mounting legal costs. Further, unlike last year, reserve releases are not expected to support bottom-line growth.
Additionally, revenue growth is expected to remain sluggish owing to lack of significant loan growth (mainly the home equity lines of credit) and continued pressure on net interest margins from a still nagging low rate environment. Consequently, banks are slowly moderating their lending standards and moving toward higher fees to avoid pressure on top line.
Nevertheless, continued expense control measures and stable balance sheets will act as positives. Also, favorable equity market and gradually improving macroeconomic factors are expected to act as tailwinds. Obviously, banks that depend less on risky activities and resort to other profit-making ways would have a brighter future.
Stringent regulations continue to affect their investment activities and increase compliance costs. Also, stricter capital requirements add to the woes. As a result, banks & thrifts are expected to report 15.6% earnings decline in the first quarter of 2014.
(For a detailed look at the earnings outlook for this sector and others, please read our Earnings Trends report.)
Though the overall scenario seems dismal, you can turn the odds in your favor. As a reflection of the weakness in the sector, bank stocks look relatively cheaper now. Therefore selecting a few banking stocks with a huge short-term growth potential should yield a solid return.
We have picked a handful of stocks that will likely beat earnings estimates in their upcoming release. An earnings beat will raise investors’ confidence in these stocks, leading to rapid price appreciation.
The Way to Select Right Stocks
Choosing the right stocks could be quite difficult unless one knows the method. One way of doing so is by selecting stocks that have the combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 (Hold) – and a positive Zacks Earnings ESP.
Earnings ESP is our proprietary methodology for identifying stocks that have the best chance to surprise with their upcoming earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.
Our research shows that for stocks with this combination, chance of a positive earnings surprise are as high as 70%.
Here are 4 banking stocks that have the right combination of elements to deliver an earnings beat when they release their earnings later this week:
Wintrust Financial Corporation (WTFC) carries a Zacks Rank #3 and has an earnings ESP of +3.03%. The Zacks Consensus Estimate for the first quarter is 66 cents per share.
Based in Rosemont, Illinois, Wintrust Financial is a bank holding company. It offers banking services, trust and investment services, commercial insurance premium financing, short-term accounts receivable financing as well as certain administrative services.
- Wintrust Financial is scheduled to report first-quarter 2014 results after the market closes on Apr 15.
Hancock Holding Company (HBHC) has a Zacks Rank #3 and an earnings ESP of +1.75%. The Zacks Consensus Estimate for the first quarter is 57 cents per share.
Based in Gulfport, MS, Hancock Holding is a bank holding as well as financial holding company. The company is the parent company of 2 wholly owned bank subsidiaries, Hancock Bank and Whitney Bank.
- Hancock Holding is slated to report first-quarter 2014 results after the market closes on Apr 16.
First Horizon National Corporation (FHN) has a Zacks Rank #3 and an earnings ESP of +6.67%. The Zacks Consensus Estimate for the first quarter is 15 cents per share.
First Horizon is financial services company based in Memphis, Tennessee. It is the holding company for First Tennessee Bank and FTN Financial. First Tennessee Bank offers deposit products, loans, investments, insurance, financial planning, trusts, asset management and cash management services. FTN Financial provides capital markets and investment banking services.
The company has registered an average positive earnings surprise of 3.5% over the trailing 4 quarters.
- First Horizon will announce its first quarter 2014 results before the opening bell on Apr 17.
Independent Bank Corp. (INDB) is a Zacks Rank #3 stock with an earnings ESP of +3.64%. The Zacks Consensus Estimate for first-quarter 2014 is 55 cents per share.
Headquartered in Massachusetts, Independent Bank Corp is the holding company for Rockland Trust Company. Through its banking subsidiary, the company offers a wide range of banking, investment and insurance services in Eastern Massachusetts and Rhode Island.
The company has registered an average positive earnings surprise of 2.3% over the trailing 12 months.
- Independent Bank Corp is scheduled to announce first-quarter results after the market closes on Apr 17.
Despite the expected pressure on bank earnings this quarter, investors have to be patient from a long-term investment perspective. Though we don’t see banks returning to their pre-crisis level any time soon, these financial institutions are encountering challenges upfront and growing at a moderate pace. Further, a favorable equity and asset market backdrop, and encouraging macroeconomic factors – such as falling unemployment, a progressive housing sector and flexible monetary policy – should pave way for further stability.
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Read the analyst report on WTFC
Read the analyst report on HBHC
Read the analyst report on FHN
Read the analyst report on INDB
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4 Banks Poised for an Earnings Beat