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5 Major Bank Stocks Poised to Beat Earnings Estimates in Q4

Zacks Equity Research
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The Q4 earnings season is just around the corner and investors are eagerly waiting for the results of the mega banks, which remained in the spotlight throughout the quarter for a number of reasons.

Heightening concerns about rising interest rates, trade tensions and political uncertainty kept the broader markets under pressure, but the continued economic improvement has provided some respite.

Flattening, and sometimes inversion of the yield curve during the fourth quarter, is expected to have a negative impact on banks’ financials. Banks typically benefit from steepening of yield curve.

Dismal mortgage banking performance was also a dampener in the quarter amid rising interest rates, which made homes less affordable. Originations and refinancing activities slowed down during the quarter.

On the trading front, performance of capital markets might be a matter of concern. Though escalating trade-war concerns, Brexit issues, anxiety on rising rates and some other geo-political tensions during the quarter created high volatility, seasonality on a sequential basis might be an offsetting factor.

Investment banking is also anticipated to display a disappointing performance in the to-be-reported quarter due to seasonality and a considerable reduction in equity underwriting volumes globally on trade-war fears.

Moreover, debt origination fees may have remained low due to rising rates curbing corporates’ involvement in these activities. Furthermore, robust pipeline of M&As in the previous quarters lost momentum in the fourth quarter on volatile stock markets and higher borrowing costs.

Further, credit quality is likely to remain strong, backed by an improving economy and conservative underwriting standards.

Expense reduction, which has helped banks remain profitable, is not expected to be a big support, as these companies have already slashed the majority of unnecessary expenses. While the absence of considerable legal expenses over the last few quarters is encouraging, increased investments in technology to improve digital offerings might escalate costs moderately.

In the S&P 500 universe, the Zacks Finance sector’s total earnings, of which major banks account for nearly 45%, are projected to increase 19.6% year over year in the quarter to be reported. This comes in lower than 31.8% growth recorded in the prior quarter.

(For detailed look at the earnings outlook for this industry and others, please read our Earnings Outlook article.)

Selecting the Winners

This is the right time for you to select some banking stocks that are well positioned to beat earnings estimates in their upcoming releases.

Choosing stocks with earnings beat potential might be a difficult task unless one knows the process to shortlist. One way to do it is by picking stocks that have the combination of a favorable Zacks Rank — Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — and a positive Earnings ESP.

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising in their upcoming earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

5 Major Banks Set for Earnings Surprises

Here are five major regional bank stocks that have the right combination of elements to deliver positive earnings surprises in their upcoming announcements:

M&T Bank Corporation MTB is slated to release results on Jan 17. The company has an Earnings ESP of +1.03% 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 JPMorgan JPM is +0.03% and it carries a Zacks Rank of 3. The company is scheduled to report earnings on Jan 15.

BB&T Corporation BBT has an Earnings ESP of +0.64% and carries a Zacks Rank of 3. It is slated to report its quarterly figures on Jan 17.

SunTrust Banks, Inc. STI is scheduled to release results on Jan 18. The company, which carries a Zacks Rank of 3, has an Earnings ESP of +0.07%.

The Earnings ESP for U.S. Bancorp USB is +0.15% and it carries a Zacks Rank of 3. The company is set to report quarterly numbers on Jan 16.

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