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Low Rates, Muted Lending to Mar State Street (STT) Q3 Earnings

Zacks Equity Research

State Street STT is scheduled to report third-quarter 2019 results on Oct 18, before the market opens. Its revenues and earnings are expected to have declined in the quarter on a year-over-year basis.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Results benefited from a decline in expenses and rise in assets under management (AUM), partly offset by lower revenues.

Moreover, State Street boasts an impressive earnings surprise history. The company’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being nearly 2%.

State Street Corporation Price and EPS Surprise
 

State Street Corporation Price and EPS Surprise

State Street Corporation price-eps-surprise | State Street Corporation Quote

However, its activities in the third quarter failed to win analysts’ confidence. Thus, its Zacks Consensus Estimate for earnings of $1.42 for the to-be-reported quarter has remained unchanged over the past 30 days. Also, the figure indicates a decline of 24% from the year-ago reported number.

The consensus estimate for sales is pegged at $2.86 billion for the third quarter, indicating a 3% year-over-year decline.

Now, let’s check the factors that are likely to have impacted State Street’s third-quarter results.

Factors at Play

Net interest income (NII) not to offer support: The Zacks Consensus Estimate for average interest earning assets is pegged at $185 billion for the third quarter, which suggests rise of 2.9% from the prior quarter’s reported number. However, overall growth in lending activities remained muted in the quarter. Moreover, the decline in interest rates and the flattening of the yield curve along with rising deposit betas are expected to have hurt State Street’s NII.

In fact, at an investors’ conference, the company projected net interest revenues to be flattish in the third quarter on a sequential basis. During the second-quarter earnings call, management anticipated the same to be down in the range of 1-3%.

Fee income growth could be muted: While the third quarter witnessed mixed foreign exchange (FX) trading volatility, FX volume declined. Given this, it is expected that the company’s FX trading revenues might have remained flat sequentially in the third quarter.

Further, the spread between the three-month LIBOR and the Fed funds rate contracted during the third quarter. Thus, State Street’s securities finance revenues are likely to have declined because of lower spreads and the impact of seasonality.

Nonetheless, decent equity market performance seems to have provided support to servicing and management fees in the third quarter.

Notably, management expects servicing fees to have been relatively flat on a sequential basis while management fees are expected to have been up in the low-single digit.

Expenses not of much help: Management expects operating expenses (non-GAAP basis) in the third quarter to remain flat sequentially.

Earnings Whispers

According to our quantitative model, chances of State Street beating the Zacks Consensus Estimate this time are low. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — 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 State Street is -2.82%.

Zacks Rank: The company currently carries a Zacks Rank #3. While this increases the predictive power of ESP, we also need a positive ESP to be confident of an earnings surprise call.

Stocks That Warrant a Look

Here are some finance stocks that you may want to consider as these have the right combination of elements to post an earnings beat in their upcoming releases, per our model.

Zions Bancorporation, National Association ZION is slated to release results on Oct 21. It currently has an Earnings ESP of +0.93% and a Zacks Rank #3.

Old National Bancorp ONB is also expected to release results on Oct 21. It presently has an Earnings ESP of +2.94% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Blackstone Group Inc BX has an Earnings ESP of +3.70% and a Zacks Rank #3 at present. The company is slated to release results on Oct 23.

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State Street Corporation (STT) : Free Stock Analysis Report
 
Old National Bancorp (ONB) : Free Stock Analysis Report
 
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Blackstone Group Inc/The (BX) : Free Stock Analysis Report
 
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