Will Rising Rates Support Fifth Third's (FITB) Q2 Earnings?

Fifth Third Bancorp FITB is scheduled to report second-quarter 2018 results on Jul 19, before the opening bell. The bank’s results are anticipated to reflect year-over-year growth in revenues and earnings.

Also, the company has a decent earnings surprise history. It topped earnings in three of the trailing four quarters, with an average positive earnings surprise of 9.7%.

In the last reported quarter, the bank’s earnings had surpassed the Zacks Consensus Estimate. Results were supported by increase in revenues, along with significant decline in provisions, and a strong capital position. Expanding net interest margin and rising loans balance remain key positives. However, rise in expenses was an undermining factor.

Fifth Third’s shares have lost around 9.6% in the three-month period ended Jun 30, 2018, compared with the industry’s decline of 2.7%.
 

Fifth Third Bancorp Price and EPS Surprise

Fifth Third Bancorp Price and EPS Surprise | Fifth Third Bancorp Quote

Will the upcoming earnings release give a boost to Fifth Third’s stock? That depends largely on whether the firm is able to impress the market with its second-quarter results.

Factors to Influence Q2 Results

Steady Net Interest Income Growth: A modest increase in lending — mainly in the areas of commercial and industrial, and consumer — is expected to have led to improvement in net interest income (NII). A rise in interest rates will provide some support despite flattening of the yield curve in the second quarter.

Management expects NII of $1.025-$1.030 billion in the quarter. NIM is projected to reflect expansion of 3-5 basis points, sequentially.

Notably, commercial loans and leases are expected to have inched up 1-1.5% in the second quarter, while consumer loans will likely reflect rise of 1% sequentially.

Fee Income Might Rise Slightly: Fifth Third’s focus on strengthening its fee income base through the North Star initiatives is likely to have lent support. Moreover, the trend of consumer spending was strong during the quarter, which will likely have boosted 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.

For the second quarter, the company expects non-interest income to be $575-585 million, up nearly 5% from the first quarter. Notably, corporate banking revenues are likely to reflect increase of 20-25% sequentially.

Expenses Might Flare Up Slightly: Fifth Third’s ongoing strategic investments in several areas, such as technology, will escalate expenses. However, the company might be successful in offsetting this upsurge through its North Star initiatives to some extent.

For the April-June quarter, the company expects non-interest expenses to reflect decline of 2%, sequentially.

Here is what our quantitative model predicts:

Fifth Third does not have the right combination of 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.

Zacks ESP: The Earnings ESP for Fifth Third is -0.10%.

Zacks Rank: Fifth Third carries a Zacks Rank #2 (Buy), which increases the predictive power of ESP. But we also need to have a positive ESP to be confident of a positive earnings surprise.

The Zacks Consensus Estimate for earnings of 57 cents reflects a 23.9% rise on a year-over-year basis. Further, the Zacks Consensus Estimate for sales of $1.6 billion indicates 6.4% increase from the prior-year quarter.

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.

State Street Corporation STT is slated to release results on Jul 20. The company has an Earnings ESP of +0.28% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Earnings ESP for Cullen/Frost Bankers, Inc. CFR is +0.56% and it also carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Jul 26.

SunTrust Banks, Inc. STI has an Earnings ESP of +0.21% and holds a Zacks Rank of 2. It is scheduled to report results on Jul 20.

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