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Will KeyCorp (KEY) be Able to Beat Q1 Earnings Estimates?


KeyCorp KEY is slated to report first-quarter 2017 results on Apr 20, before the opening bell.

Last quarter, revenue synergies from the First Niagara deal (completed in Aug 2016) helped KeyCorp to outpace the Zacks Consensus Estimate for earnings. Further, the company reported impressive growth in loans and deposits. However, higher operating expenses and a rise in provision for credit losses were headwinds.

Despite the earnings beat, the company’s share price declined nearly 3% in the three months ended Mar 31, 2017. However, analysts seem to be optimistic about KeyCorp’s prospects as the company’s current-quarter earnings estimates increased 3.7% in the last 30 days.

Also, the Zacks Consensus Estimate of 28 cents for the to-be-reported quarter represents year-over-year growth of 15.3%.

However, KeyCorp does not have an impressive earnings surprise history, as is evident from the chart below:

KeyCorp Price and EPS Surprise

KeyCorp Price and EPS Surprise | KeyCorp Quote

Earnings Whispers

According to our proven model, we cannot conclusively predict whether KeyCorp will be able to beat the Zacks Consensus Estimate this time around. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #3 (Hold) or better for this to happen, but that’s not the case with KeyCorp.

(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 KeyCorp is 0.00%. This is because the Most Accurate Estimate of 28 cents is in line with the Zacks Consensus Estimate.

Zacks Rank: KeyCorp’s Zacks Rank #3 increases the predictive power of ESP. But we also need to have a positive Earnings ESP to be confident of an earnings beat.

Factors to Impact Q1 Results

Net Interest Income (NII) Should Benefit from Improving Rates: Loan growth remained moderate in first-quarter 2017. However, the benefits of the Dec 2016 rate hike along with a steeper yield curve should more than offset the weaker loan growth leading to an improvement in NII. Also, the Mar 2017 rate hike should have some positive impact on margins.

Increase in Non-Interest Income: We believe KeyCorp’s first-quarter non-interest income will be positively impacted by increasing investment banking income driven by higher debt placement fees. Though mortgage production is expected to be relatively weak during the quarter, expectations of higher servicing fees should also support the company’s non-interest income in the to-be-reported quarter.

Expenses to Decline: KeyCorp has been consistently streamlining operations, diversifying products and exiting unprofitable/non-core businesses. This is expected to keep overall expenses (excluding merger related charges) stable on a year-over-year basis.

Also, management is of the opinion that the cost savings from the Fist Niagara deal of more than the target value of $400 million will be accrued by mid-2017. We expect this benefit from the deal to lead to lower expense in the first quarter.

Stocks That Warrant a Look

Here are a few finance stocks that you may want to consider, as our model shows that they have the right combination of elements to post an earnings beat in the upcoming announcements.

Ameriprise Financial, Inc. AMP is slated to release results on Apr 24. It has an Earnings ESP of +0.79% and carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zions Bancorporation ZION has an Earnings ESP of +1.85% and carries a Zacks Rank #3. The company is also slated to release results on Apr 24.

Lazard Ltd LAZ is scheduled to release results on Apr 27. It has an Earnings ESP of +3.95% and carries a Zacks Rank #2.

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