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Loans, Leerink Buyout to Aid SVB Financial (SIVB) Q1 Earnings

Zacks Equity Research

SVB Financial Group SIVB is slated to announce first-quarter 2019 results on Apr 25, after market close. Its revenues and earnings are projected to grow year over year.

In the last reported quarter, the company’s earnings outpaced the Zacks Consensus Estimate. Higher revenues, decline in credit costs and loan growth aided the results. However, higher non-interest expenses acted as a headwind.

The company boasts an impressive earnings surprise history. Its earnings surpassed the consensus estimate in each of the trailing four quarters, the average beat being 13.4%.

SVB Financial Group Price and EPS Surprise

 

SVB Financial Group Price and EPS Surprise | SVB Financial Group Quote

Also, activities of the company during the first quarter encouraged analysts. The Zacks Consensus Estimate for earnings has moved marginally upward to $4.73 over the past 30 days. The figure indicates growth of 30.3% from the year-ago reported figure. Further, the consensus estimate for sales of $744.5 million implies rise of 29.4%.

Factors at Play

Net interest income (NII) to improve marginally: Per the Fed’s latest data, commercial loans (constituting a major part of SVB Financial’s loan portfolio) and real estate loans recorded decent growth during the first quarter. The Zacks Consensus Estimate for average interest earning assets of $56.7 billion represents rise of 12.3% year over year.

This, along with modest loan growth, benefit from the Leerink acquisition (closed in January 2019) and higher interest rates, will likely support the bank’s NII. However, rise in deposit betas and flattening of yield curve are expected to hurt NII to some extent.

Fee income to slightly rise: Supported by increase in credit card-related consumer loans during the quarter, the company’s credit card fees are expected to rise. However, increased competition and rise in deposit costs will have an adverse impact on the company’s service charge on deposits. Therefore, SVB Financial’s non-interest income is likely to witness a marginal improvement in the first quarter.

Expenses to rise: SVB Financial’s adjusted non-interest expenses are expected to increase in the first quarter due to its continued spending on technology systems overhaul and investment in franchise. Further, acquisition of Leerink will lead to a rise in operating expenses too.

Asset quality not likely to lend much support: The Zacks Consensus Estimate for allowance for loan losses of $294 million suggests an increase of 7.3% from the year-ago reported figure. However, the consensus estimate for non-performing assets of $99 million indicates a fall of 15.4%.

Earnings Whispers

Per our quantitative model, the chances of SVB Financial beating the Zacks Consensus Estimate in the first quarter are high. This is because it has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

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 SVB Financial is +0.42%.

Zacks Rank: SVB Financial has a Zacks Rank #3, which further increases the predictive power of ESP.

Other Stocks to Consider

Here are a few other bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming release.

BankUnited, Inc. BKU has an Earnings ESP of +1.89% and carries a Zacks Rank of 3 at present. The company is slated to release results on Apr 24.

Prosperity Bancshares, Inc. PB is slated to release results on Apr 24. It has an Earnings ESP of +0.52% and currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Associated Banc-Corp ASB is scheduled to release results on Apr 25. It presently has an Earnings ESP of +0.55% and a Zacks Rank #3.

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