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What’s in Store for Northern Trust (NTRS) in Q4 Earnings?


Northern Trust Corporation NTRS is scheduled to report fourth-quarter and full-year 2016 results on Wednesday, Jan 18, before the opening bell.

The Chicago, IL-based company’s third-quarter earnings were in line with the Zacks Consensus Estimate. Results benefited from improved revenues. The quarter also witnessed a rise in assets under custody and assets under management. However, results exhibited escalating operating expenses.

Notably, Northern Trust has delivered positive earnings surprises in three of the trailing four quarters, with an average earnings beat of 4%. Regarding the stock’s performance, it has gained more than 30% during the fourth quarter.

Northern Trust Corporation Price and EPS Surprise

Northern Trust Corporation Price and EPS Surprise | Northern Trust Corporation Quote

Earnings Whispers

Will the upcoming earnings release give a boost to Northern Trust’s stock? This depends largely on whether the firm is able to post a beat in the to-be-reported quarter. However, based on our quantitative model, we cannot conclusively predict an earnings beat. Here’s why:

Northern Trust doesn’t have the right combination of the two key ingredients – a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) – for increasing its chances 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 Northern Trust is 0.00%. This is because the Most Accurate Estimate of $1.13 is on par with the Zacks Consensus Estimate.

Zacks Rank: Northern Trust’s Zacks Rank #2 increases the predictive power of ESP. However, we need a positive ESP to be confident of an earnings surprise.

Factors to Influence Q4 Results

Trust Revenues to Witness Improvement: The equity markets showed a decent improvement in the fourth quarter. Even though the index measuring international equity performance – the MSCI EAFE Index – declined marginally during the quarter, the S&P 500 Index gained around 3.3%.

However, Northern Trust uses a lag effect to calculate its corporate custody and investment management fees, i.e. the computations are based on prior quarter-end valuations. And since the equity markets were relatively strong in the third quarter, the company should be able to record strong growth in custody, servicing and management fees.

Modest Increase in Net Interest Income (NII): The higher interest rates as well as the effect of seasonality are likely to lead to lower premium amortization in the fourth quarter. This should have a positive effect on the company’s NII.

Foreign Exchange Trading Revenues to Rise: Given the increase in foreign exchange (“FX”) trading volatility, as well as volumes in the fourth quarter, the company’s revenues from FX trading are likely to improve.

Expenses to Rise Modestly: Management expects that the annual base-pay adjustments that were deferred and made effective in Oct 2016 will result in a $7 million increase in compensation expense in the fourth quarter. Also, equipment and software expenses are likely to increase modestly due to the effect of seasonality in the quarter. Further, despite some cost saving initiatives, Northern Trust’s continued investments in new business activities and higher regulatory and compliance costs may escalate its expenses.

Activities of Northern Trust during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter decreased nearly 1% to $1.13 over the last seven days. Notably, the estimated figure represents year-over-year growth of 14.6%.

Stocks that Warrant a Look

Here are some stocks worth considering, as they have the right combination of elements to post an earnings beat in their upcoming releases.

Citigroup Inc. C is slated to release results on Jan 18. The company has an Earnings ESP of +1.79% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

KeyCorp KEY has an Earnings ESP of +6.90% and it carries a Zacks Rank #2. The company is slated to release results on Jan 19.

Fifth Third Bancorp FITB has an Earnings ESP of +2.33% and a Zacks Rank #2. It is scheduled to report results on Jan 24.

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