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What’s in Store for People’s United (PBCT) in Q3 Earnings?


People's United Financial Inc. PBCT is scheduled to report third-quarter 2016 results on Thursday, Oct 20.

Last quarter, this financial savings and loan institution’s earnings per share not only logged a growth of 15% year-over-year, but also managed to beat estimates by 4.6%. Results were aided by higher revenues, partially offset by increased expenses and provisions.

Notably, shares of People's Unitedhave gained around 8% during the third quarter. Further, the company has a decent earnings surprise history, as evident from the chart below:

PEOPLES UTD FIN Price and EPS Surprise


Will People's Unitedbe able to post an earnings beat yet again? Or will a challenging backdrop hurt its financials this earnings season? Let’s see how things have shaped up for this announcement.

Factors to Drive Q3 Results

An improving labor market with lower unemployment rate and a recovering housing market should support loan growth in the commercial and real estate space. Also, backed by economic recovery, the areas of auto, credit cards and student lending is likely to witness growth. This is expected to result in increased lending activity at People’s United.

Moreover, management’s expectations of witnessing a growth in loans and deposits in 2016 will likely be reflected in this quarter. Further, the loan growth is expected to drive net interest income. In fact, management expects net interest income to grow in the range of 5–7% in 2016, which will be reflected in the upcoming release as well.

However, margin compression is likely to have continued in the to-be-reported quarter amid low rate environment and continued flat yield curve.

Nonetheless, management expects non-interest income to exhibit consistent growth. Therefore, backed by all these expectations, the company’s top line is expected to improve.

However, based on management’s guidance of increased expenses for full-year 2016, we anticipate costs to trend higher in the third quarter. Moreover, costs associated with branch optimization and technology improvement are likely to limit bottom-line expansion.

Additionally, any substantial growth in loans calls for a simultaneous increase in provisions. As such, provisions are anticipated to remain high this time around.

The company’s activities during the quarter were insufficient to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the to-be-reported quarter has remained unchanged at 23 cents over the past seven days.

Earnings Whispers

Our proven model does not conclusively show that People's United is likely to beat the Zacks Consensus Estimate in the third quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below:

Zacks ESP: The Earnings ESP for People's United is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 23 cents.

Zacks Rank: People's United’s Zacks Rank #3 increases the predictive power of ESP. But we also need to have a positive ESP to be confident of an earnings surprise call.

Stocks That Warrant a Look

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

Raymond James Financial, Inc. RJF is slated to release its results on Oct 26. The company has an Earnings ESP of +2.04% and carries a Zacks Rank #2.

Lazard Ltd. LAZ is scheduled to report its results on Oct 27.It has an Earnings ESP of +3.90% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks Rank #1 stocks here.

The Earnings ESP for T. Rowe Price Group, Inc. TROW is +0.84% and it carries a Zacks Rank #3. The company is scheduled to release its third-quarter results on Oct 27.

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