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Can High Revenues Drive Northern Trust's (NTRS) Q4 Earnings?

Zacks Equity Research

Northern Trust Corporation’s NTRS fourth-quarter results, scheduled for Jan 23, 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 will boost the company’s overall revenues. The Zacks Consensus Estimate of $1.5 billion for sales for the to-be-reported quarter reflects a year-over-year improvement of 5.4%.

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 decent in the fourth quarter, the company will likely be able to register growth in custody, servicing and management fees.

Per the Zacks Consensus Estimate, C&I segment’s custody and fund administration fees are likely to increase 3.5% year over year to $382 million. Also, investment management and securities lending revenues are projected to be up 4.7% and 7.9%, respectively.

With improvement in all components, total C&I trust, investment and other servicing fees are likely to rise 3.6% year over year to $552 million.
 

Northern Trust Corporation Price and EPS Surprise

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

Here are the other factors that might influence the company’s Q4 performance:

Net Interest Income (NII) Might Disappoint: A decent lending backdrop, particularly in the areas of commercial and industrial, commercial real estate and consumer will offer support to banks’ interest income, while weakness in revolving home equity loans (due to slowdown in originations as well as refinancing activities) will partially offset this. Nevertheless, flattening and sometimes, even inversion of the yield curve during the fourth quarter, is expected to negatively impact banks’ net interest margin.

Notably, average earnings assets are anticipated to decrease, thus impacting the company’s NII. The consensus estimate of $111.7 billion reflects a 1.4% year-over-year decline in earning assets.

Foreign Exchange Trading Revenues to Remain Stable: Given the mixed trend in foreign exchange (“FX”) trading volatility and stable volumes in the fourth quarter, the company’s revenues from FX trading might remain flat for the quarter.

Controlled Expenses: With Northern Trust’s cost-saving initiatives underway, expenses in the quarter might have remained under control.

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

Northern Trust does not have the right combination of the two key ingredients — positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold).

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

Earnings ESP: The Earnings ESP for Northern Trust is -0.57%.

Zacks Rank: Northern Trust currently carries a Zacks Rank #4, which further decreases the predictive power of ESP.

Further, activities of the company during the quarter under review were unable to win analysts’ confidence. As a result, the Zacks Consensus Estimate for earnings of $1.63 remained unchanged over the last seven days. Nevertheless, the figure reflects a year-over-year improvement of 20.7%.

Stocks That Warrant a Look

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

Ares Capital Corporation ARCC is slated to release results on Feb 12. The company has an Earnings ESP of +1.10% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Huntington Bancshares Incorporated HBAN is +3.97% and it also carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Jan 24.

BOK Financial Corporation BOKF has an Earnings ESP of +2.54% and holds a Zacks Rank of 3. It is slated to report December quarter-end results on Jan 30.

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