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What’s in the Cards for SunTrust (STI) Stock in Q1 Earnings?


SunTrust Banks, Inc. STI is slated to report first-quarter 2017 results on Apr 21, before the opening bell.

Driven by a rise in revenues, SunTrust’s earnings surpassed the Zacks Consensus Estimate in fourth-quarter 2016. However, an increase in provision for credit losses and an escalation in operating expenses were the undermining factors.

Despite improvement in the operating environment and rise in interest rates, the company’s stock price movement for the three months ended Mar 31, 2017 was disappointing. Nonetheless, analysts seem to be optimistic about SunTrust’s business activities and prospects. As a result, the Zacks Consensus Estimate of 84 cents for the just concluded quarter improved 2.4%, over the last 30 days.

Additionally, SunTrust boasts a decent earnings surprise history, as evident from the chart below:

SunTrust Banks, Inc. Price and EPS Surprise

SunTrust Banks, Inc. Price and EPS Surprise | SunTrust Banks, Inc. Quote

Earnings Whispers

Before we go into a detailed discussion about the factors that are likely to impact the results, let’s check what our quantitative model predicts.

According to our quantitative model, we cannot conclusively predict earnings beat for SunTrust in the first quarter. 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.

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 SunTrust is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 84 cents.

Zacks Rank: SunTrust currently carries a Zacks Rank #2 (Buy). This increases the predictive power of ESP but we need to have positive ESP to be reasonably confident of an earnings beat.

Factors to Influence Q1 Results

Net Interest Income (NII) Should Benefit from Higher Rates: The benefits of the Dec 2016 rate hike and a steeper yield curve should more than offset the weaker loan growth during the quarter, leading to an improvement in NII. Further, the Mar 2017 rate hike should have some positive impact on margins. Notably, management expects net interest margin to rise 5–6 basis points in the first quarter.

Modest Improvement in Non-Interest Income Likely: SunTrust’s non-interest income should have benefited from improved investment banking activities during the quarter. Though mortgage production is expected to be weak, expectations of higher servicing fees should support non-interest income. Besides, SunTrust anticipates mortgage servicing income to be above $50 million on assuming relatively stable rates in the first quarter.

Expenses Must have Risen: While the company is undertaking measures to contain costs, its efforts to strengthen the revenue base are unlikely to lead to any considerable decline in expenses. Further, management expects personnel expenses to increase $75–$100 million in the quarter, given the seasonal increase in 401K and FICA expenses.

Credit Quality to Support Results: Improvement in the energy sector and stabilizing oil prices are anticipated to result in lower provisions for loan losses as the company should have released oil portfolio related reserves. Hence, overall credit quality is anticipated to reflect improvement in the upcoming release.

Stocks that Warrant a Look

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

Ameriprise Financial, Inc. AMP is scheduled to release results on Apr 24. It has an Earnings ESP of +0.79% and carries a Zacks Rank #2. 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 +6.41% and carries a Zacks Rank #2.

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