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Loan Growth to Support Regions Financial (RF) Q4 Earnings

Zacks Equity Research

Regions Financial RF is scheduled to report fourth-quarter 2018 results on Jan 18, before the opening bell. The bank’s results are estimated to reflect year-over-year rise in both revenues and earnings.

Also, the company has a decent earnings surprise history. It surpassed earnings in three of the preceding four quarters, coming up with average positive earnings surprise of 2.17%.

This Birmingham, AL-based company’s third-quarter 2018 earnings compared favorably with the prior-year quarter’s earnings, recording 28% increase. Easing margin pressure and higher revenues were the positive factors. Moreover, credit quality recorded significant improvement. However, lower deposits balances were the undermining factors. In addition, expenses escalated in the quarter.

Further, the Zacks Consensus Estimate for fourth-quarter earnings remained unchanged at 38 cents over the last 60 days, reflecting a year-over-year improvement of nearly 40.7%. The Zacks Consensus Estimate for sales of $1.47 billion indicates around 1.3% growth from the prior-year quarter.

In addition, Regions’ results are expected to reflect a marginal rise, on a sequential basis, in average interest-earning assets, with the Zacks Consensus Estimate for the to-be-reported quarter at $109.7 billion.

Regions Financial Corporation Price and EPS Surprise

Regions Financial Corporation Price and EPS Surprise | Regions Financial Corporation Quote

Notably, the company’s share price has depreciated post Q3 earnings. For the three-month period ended Dec 31, 2018, the stock has lost around 26.2%.

Will the upcoming earnings release give a boost to Regions’ stock? This depends largely on whether or not the firm is able to post a beat in the fourth quarter.

Factors to Influence Q4 Results

Loan Growth: A modest increase in lending — mainly in the areas of commercial and industrial, commercial real estate and consumer — is expected. However, weakness in revolving home equity loans (due to slowdown in originations as well as refinancing activities) will partially offset this.

In addition, management’s expectations of loan growth in 2018 will likely be reflected in this quarter. The bank projects average loans to reflect year-over-year growth in low-single digits, while average deposits are projected to remain relatively stable, excluding brokered and Wealth Institutional Services deposits.

Modest Rise in Net Interest Income (NII): A modest increase in lending is anticipated to have led to improvement in NII. Notably, flattening, and sometimes inversion of the yield curve during the Dec-end quarter might have an unfavorable impact on net interest margin. Management’s projections of the 2018 NII and other financing income’s rise of 5-6% are likely to show impact in the quarter under review. Based on market conditions, loan growth, rate increase in December and modest increase in deposit costs, continuation of recent growth trends in net interest income, and a 3-5 basis-point expansion of net interest margin are expected.

Non Interest Income Might Escalate: The persistent decline in non-interest income has weighed on the top line in the last few years. Fixed income trading revenues are expected to remain muted on a year-over-year basis due to challenging trading environment during the quarter. The trend of consumer spending was strong during the Oct-Dec quarter, which will likely have bolstered the bank’s credit and debit card revenues. However, poor mortgage banking revenues during the quarter are anticipated to have offset the positives to some extent. Nevertheless, adjusted non-interest income is estimated to be up 4.5-5.5% in 2018.

Notably, the Zacks Consensus Estimate for capital market revenues is estimated to climb 13.3% sequentially to $51 million, while commercial credit fee income is projected to be up marginally to $18.2 million.

Expenses Might Rise Slightly: Regions’ bottom line is expected to reflect the decent support of its efficient expense management during the quarter to be reported. Notably, the company is on track for a $400-million expense reduction by 2019. While investing in revenue-generating areas, the company intends to keep expenses stable.

Here is what our quantitative model predicts:

Regions does not have the right combination of two key ingredients for a possible earnings beat — a 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 is currently pegged at -0.52%.

Zacks Rank: Regions’ carries a Zacks Rank #3, which increases the predictive power of ESP. But we also need to have a positive ESP to be confident of a positive earnings surprise.  

Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into an earnings announcement.

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 +1.38% 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 +0.32% and it also carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Jan 24.

TD Ameritrade Holding Corporation AMTD has an Earnings ESP of +0.62% and holds a Zacks Rank of 2. It is slated to report December quarter-end results on Jan 22.

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