3 Bank Stocks Poised To Deliver Earnings Beat In Q3

The U.S. banks, constituting a major part of the Finance sector, have always drawn substantial attention from investors during the earnings season. While the industry backdrop has not been favorable since the beginning of the year, banks managed to deliver a decent performance in the first two quarters. The upcoming results are not expected to be disappointing either.

A low interest rate environment (the biggest concern for banks) continued to prevail in the quarter. The market was speculating a hike in September, but the Federal Reserve maintained a dovish stance. Therefore, net interest margin is expected to remain under pressure.

Nonetheless, on the non-interest income front, trading revenues are anticipated to rise, driven by the strength in fixed income and currencies. Equity trading is likely to remain lackluster.

Further, mortgage banking fees are anticipated to improve slightly as the low mortgage rates during the quarter might have pushed people to refinance home loans. Moderate growth in fresh mortgage originations is also expected.

Per preliminary Thomson Reuters data, M&A activity remains robust, but the total deal value of announced M&As across the world declined during the quarter. Also, global economic concerns led to lower IPOs. Therefore, banks are not likely to see growth in advisory and investment banking fees.

On expense front, banks are continuously looking for cost-saving opportunities to improve the bottom-line performances. Among other steps to curb costs, banks are increasingly spending on technological advancements in order to substitute labor and manage higher volumes, and increase operational efficiency.

Additionally, a substantial decrease in legal expenses will be another major positive for the third quarter results. This is also expected to reduce the provisions for legal expenses.

Additionally, as the oil prices continue to rebound, provisions for energy sector loans are expected to decline. Moreover, as the economy continues to recover, delinquencies are expected to decline and overall asset quality is likely witness improvement.

The broader finance sector is expected to witness 3.9% year-over-year earnings growth in the third quarter. This compares favorably with 5.2% decline witnessed in the prior quarter.

(For detailed look at the earnings outlook for this sector and others, please read our Earnings Preview report).

Selecting the Winning Stocks

While the overall operating environment remained challenging, upcoming results from some of the banks are expected to reflect resilience. Hence, this is the right time for you to pick some banking stocks that are poised to beat earnings in their upcoming releases.

Choosing the most rewarding stocks within the industry might be a difficult task unless one knows the process to narrow down the list. One way to do that is by choosing 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 of 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%.

3 Banks Set to Deliver Positive Earnings Surprises

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

Synovus Financial Corporation (SNV) has an Earnings ESP of +2.00% and carries a Zacks Rank #3. It is scheduled to report results on Oct 18. You can see the complete list of today’s Zacks #1 Rank stocks here.

SunTrust Banks, Inc. (NYSE:STI) has an Earnings ESP of +1.12% and it carries a Zacks Rank #3. The company is slated to release results on Oct 21.

The Earnings ESP for State Street Corporation (NYSE:STT) is +0.80% and it carries a Zacks Rank #2. The company is scheduled to release results on Oct 26.

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SYNOVUS FINL CP (SNV): Free Stock Analysis Report

SUNTRUST BKS (STI): Free Stock Analysis Report

STATE ST CORP (STT): Free Stock Analysis Report

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