5 Major Bank Stocks Poised To Beat Earnings Estimates In Q3

The Q3 earnings season is just around the corner and investors are eagerly awaiting the results of banks that have been in the spotlight throughout the quarter for a number of reasons.

While investors’ optimism over the Fed’s plans to unwind its giant balance sheet and keep raising interest rates should drive bank stocks higher in the upcoming months, Q3 results are not expected to be overwhelming.

This is because, major banks in the S&P 500 index (accounting for nearly 45% of the Zacks Finance Sector's total earnings) are expected to witness 5.1% year-over-year decline in earnings in the to-be-reported quarter. This compares with 10% growth recorded in the prior quarter.

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

Reduction in equity issuance, feeble equity trading volumes and subdued volumes of M&A’s are expected to negatively impact fee income growth for banks this time around. However, a persistent rise in debt underwriting (mainly on assumption of continuous increase in interest rates) and stability of fixed income trading flows will likely provide some respite.

In addition to the benefits from the rising interest rates, a moderate improvement in lending, particularly in the areas of commercial and consumer might energize interest income for banks.

Credit quality is anticipated to remain strong, backed by an improving economy and conservative underwriting standards. Though a continued momentum in investment banking business is likely to support the bottom-line numbers, banks might remain under pressure due to lackluster fixed-income trading activities on low volatility during the third quarter.

On the cost front, while the absence of considerable legal expenses is positive, increased investments in technology to improve digital offerings might escalate costs moderately.

Selecting the Winners

While the upcoming results are unlikely to be impressive, there are still a few major banks that are expected to outshine their peers. Therefore, 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:

Comerica Incorporated (NYSE:CMA) (CMA) is slated to release results on Oct 17. 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 stocks here.

The Earnings ESP for PNC Financial Services Group (NYSE:PNC), Inc. (PNC) is +0.07% and it carries a Zacks Rank of 2. The company is scheduled to release results on Oct 13.

State Street Corporation (NYSE:STT) (STT) has an Earnings ESP of +0.57% and carries a Zacks Rank of 2. It is scheduled to report results on Oct 23.

M&T Bank Corporation (NYSE:MTB) (MTB) is slated to release results on Oct 18. The company, which carries a Zacks Rank of 3, has an Earnings ESP of +0.80%.

The Earnings ESP for U.S. Bancorp (USB) is +0.09% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Oct 18.

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