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Will Loan Growth Aid People's United (PBCT) Q2 Earnings?

Zacks Equity Research

People's United Financial, Inc. PBCT is scheduled to report second-quarter 2017 results on Jul 20. With expectation of year-over-year growth in revenues and stable earnings, we can’t conclusively predict a likely earnings beat.

Before we discuss why an earnings beat might not be in store and what could influence the results, let’s take a look at how the company performed in the last quarter.   

The Bridgeport, CT-based company’s first-quarter 2017 earnings were in line with the Zacks Consensus Estimate. Higher revenues and elevated expenses were recorded in the quarter. Growth in loans and deposit balances were the positives. Moreover, credit quality marked a significant improvement.

Notably, in the second quarter, the stock declined around 3%. Also, the Zacks Consensus Estimate remained unchanged over the last 30 days.

Moreover, People's United has a decent earnings surprise history, as evident from the chart below:

People's United Financial, Inc. Price and EPS Surprise

People's United Financial, Inc. Price and EPS Surprise | People's United Financial, Inc. Quote

Will the upcoming earnings release give a boost to People's United stock? This depends largely on whether the firm is able to post a beat in the second quarter. However, our quantitative model doesn’t conclusively point toward an earnings beat this time. Here’s why:

People's United doesn’t have the right combination of the two key ingredients – a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) – for increasing its chances of an earnings beat. It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Zacks ESP:The Earnings ESP for People's United is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 23 cents. This is a major indicator of a likely positive earnings surprise for the company. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: People's United’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 beat.

Factors to Influence Q2 Results

Loan Growth: Per the Federal Reserve’s latest data, loans grew on a sequential basis during the second quarter. Both commercial real estate loans and commercial and industrial loans (C&I) are anticipated to increase, while consumer loans might fall. Therefore, interest income for banks is projected to improve marginally.

In addition, management’s expectations of loan and deposit growth in 2017 will likely be reflected in this quarter. Management projects loan portfolio to grow in the range of 5–7%.

Modest Rise in Net Interest Income (NII): Given the effect of rise in interest rates, People's United should have recorded an increase in NII. Notably, management’s projections of 2017 NII to grow in the range of 5–7% is likely to show impact in the second quarter as well.

Fee Income to Escalate: Given the seasonal tailwinds, service charges and payments might escalate lifting fee income for the bank. Moreover, the company expects non-interest income to rise in the range of 5–7% in 2017.

Increase in Expenses: Despite undertaking a number of expense-saving initiatives, People’s United’s operating expenses have witnessed an elevated level. Though the company is focused on optimizing its branch network and has initiated installation of technology to improve efficiencies and reduce costs, elevated expense levels are likely to limit bottom-line expansion.

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.

Old National Bancorp ONB has an Earnings ESP of +3.70% and a Zacks Rank #2. It is scheduled to report second-quarter 2017 results on Jul 25. You can see the complete list of today’s Zacks #1 Rank stocks here.

Huntington Bancshares Incorporated HBAN has an Earnings ESP of +4.35% and a Zacks Rank #3. It is slated to report second-quarter results on Jul 21.

Fifth Third Bancorp FITB has an earnings ESP of +2.38% and a Zacks Rank #3. It is slated to report second-quarter results on Jul 21.

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