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Can High Revenues Drive Northern Trust's (NTRS) Q1 Earnings?

Zacks Equity Research
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Best Buy (BBY) has an impressive earnings surprise history and currently possesses the right combination of the two key ingredients for a likely beat in its next quarterly report.

Northern Trust Corporation’s NTRS first-quarter 2018 results, scheduled for Apr 17, are expected to reflect a year-over-year rise in earnings and revenues.

Notably, the company provides majority of its asset management services through the C&IS unit, which generates more than 50% of total revenues. A rise in revenues in this segment on the back of increased trading activities, will boost the company’s overall top line.

Also, improved lending scenario, rising interest rates and bottom-line benefits from tax reform will provide further support to quarter’s results. The Zacks Consensus Estimate of $1.45 billion for sales for the to-be-reported quarter reflects a year-over-year improvement of 13%.

Moreover, Northern Trust uses a lag effect to calculate its corporate custody and investment management fees, i.e. the computations are based on the prior quarter-end valuations. Since the performance of equity markets was relatively better in the first quarter, the company will likely be able to register growth in custody, servicing and management fees.

Here are the other factors that might influence the company’s first-quarter performance:

Modest Rise in Net Interest Income (NII): Overall loan growth remained decent in the quarter. Backed by improvement in loan balances, along with the effect of rising interest rates, Northern Trust is likely to record an increase in NII.

Foreign Exchange Trading Revenues to Increase: Due to the rise in foreign exchange (FX) trading volatility and volumes, the company’s revenues from FX trading might increase.

Custody Fees Might Rise: As Northern Trust uses lag effect in calculation of custody and investment management fees, expansion of three-month LIBOR rate along with higher trading activities are likely to drive related fees.

Per the Zacks Consensus Estimate, custody fees are likely to increase 23.1% to $379 million.

Marginal Increase in Expenses: Though Northern Trust has a cost-saving initiatives underway, continued investments in new business activities and seasonally higher compensation expenses may lead to a marginal rise in expenses.

Let’s have a look at what our quantitative model predicts:

Our proven model doesn’t conclusively show that Northern Trust will be able to beat the Zacks Consensus Estimate this time around, as it does not have the right combination of two key ingredients. Note that a stock with the combination of a positive Earnings ESP and a Zacks Rank #3 (Hold) or better has significantly higher chances of beating estimates.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: The Earnings ESP for Northern Trust is -0.70%.

Zacks Rank: The combination of Northern Trust’s Zacks Rank of 3 and a positive ESP makes us confident of an earnings beat.

However, activities of the company during the quarter under review were able to win analysts’ confidence. As a result, the Zacks Consensus Estimate for earnings of $1.42 was revised 2.2% upward over the last seven days. Further, the figure reflects a year-over-year improvement of 30.3%.

Northern Trust Corporation Price and EPS Surprise

Northern Trust Corporation Price and EPS Surprise | Northern Trust Corporation Quote

Stocks to Consider

Here are a few finance stocks that you may want to consider, as these have the right combination of elements to post an earnings beat this quarter, according to our model.

Comerica Incorporated CMA is scheduled to release results on Apr 17. It has an Earnings ESP of +0.93% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BB&T Corporation BBT is slated to release results on Apr 19. It has an Earnings ESP of +1.37% and carries a Zacks Rank of 3.

The Bank of New York Mellon Corporation BK has an Earnings ESP of +0.39% and carries a Zacks Rank of 3. The company is also slated to release results on Apr 19.

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