Why an Earnings Beat is Likely for SunTrust (STI) in Q4

SunTrust Banks, Inc. STI is scheduled to report fourth-quarter and 2017 results on Jan 19, before the opening bell. Its revenues and earnings are projected to grow year over year.

Last quarter, SunTrust’s earnings came in line with the Zacks Consensus Estimate. Results benefited from an improvement in net interest income, partially offset by higher expenses. A stable loan balance and an increase in deposits supported the results. However, a rise in provision for credit losses and lower non-interest income (mainly owing to mortgage banking woes) were the headwinds.

SunTrust 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 2.7%.

However, the company’s activities in the fourth quarter failed to impress analysts to revise earnings estimates upward. As a result, the Zacks Consensus Estimate for earnings of $1.05 witnessed a decline of approximately 1% over the last 7 days. Nevertheless, the figure represents a year-over-year improvement of 16.7%.

Further, the Zacks Consensus Estimate for revenues of $2.31 billion reflects an improvement of 7% from the prior-year quarter.

The company’s price performance has also been impressive. Its shares have gained 22.1% in the past six months, outperforming the industry’s growth of 18.1%.

Will the stock’s rally continue post fourth-quarter earnings release? To a great extent, it depends on whether the company manages to beat earnings estimates this time around. Let’s check what our quantitative model predicts.

A Positive Surprise in Store?

According to our quantitative model, chances of SunTrust beating the Zacks Consensus Estimate in the to-be-reported quarter are high. This is because it has the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — which is required to be confident 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 SunTrust is +0.81%.

Zacks Rank: SunTrust currently carries a Zacks Rank #2 (Buy), which when combined with a positive ESP, increases the chances of an earnings beat.

SunTrust Banks, Inc. Price and EPS Surprise

SunTrust Banks, Inc. Price and EPS Surprise | SunTrust Banks, Inc. Quote

Factors to Influence Q4 Results

Net Interest Income (NII) to Remain Stable: The fourth quarter witnessed modest loan growth. However, the company projects NII to be relatively stable year over year because balance sheet growth will most likely be offset by pressure on net interest margin (NIM). The company expects the fourth quarter NIM to decline in the range of 1-3 basis points.

Relatively Stable Non-Interest Income: Refinancing activities increased during the quarter on the expectation of a higher interest rate environment. However, with the refinance boom nearing its end, a big help is not expected from this segment and hence mortgage revenues are not expected to witness much improvement.

Nonetheless, despite being the seasonally weak quarter for equity issuances globally, fourth-quarter 2017 is expected to be an exception. Strong rally in the equity markets across the globe might have propelled IPOs and follow-on offerings. Thus, the related fees are projected to increase for SunTrust. Along with this, a rise in investment banking activities in the quarter should provide some support to the overall fee income growth.

Expenses to Decline Slightly: The company’s initiatives of consolidating its branch networks are likely to translate into marginal expense reduction. Further, management expects overall expenses in 2017 to decline, given the low-cost employee benefits, along with the benefits of the company’s efficiency initiatives.

Stocks That Warrant a Look

Here are some stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around.

Bank Of New York Mellon Corporation BK has an Earnings ESP of +0.16% and a Zacks Rank #3 (Hold). It is slated to report fourth-quarter and 2017 results on Jan 18. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BB&T Corporation BBT Earnings ESP is +0.33% and it carries a Zacks Rank of 2. The company is expected to release fourth-quarter and 2017 results on Jan 18.

M&T Bank Corporation MTB has an Earnings ESP of +0.45% and a Zacks Rank #3. It is scheduled to report results on Jan 18.

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