State Street (STT) Q2 Earnings: Will The Stock Disappoint?

State Street Corporation (NYSE:STT) is scheduled to report its second quarter 2016 results before the market opens on Wednesday, Jul 27.

Last quarter, a stable expense base and improved securities finance revenue helped State Street to beat the Zacks Consensus Estimate. However, a persisting low interest rate environment and a strengthening U.S. dollar adversely impacted the operating revenues.

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

Factors to Impact Q2 Results

Will State Street succeed in maintaining its earnings streak? Or will low interest rate environment be a drag on the bottom line? Let’s check out the factors that are likely to influence State Street’s results.

State Street has launched the next phase of its transformation program, which is expected to give rise to restructuring costs during the quarter. Further, upward pressure on regulatory and compliance cost is expected to linger.

Also, the company expects to see additional spending in the information systems line. Therefore, operating expenses should trend up marginally.

On the revenue front, with a significant sell-off in the equity markets in June-end and the strengthening of the U.S. dollar, certain fee income components are likely to be adversely impacted to an extent. On the other hand, the company expects servicing and management fees to rise led by improvement in global equity markets.

Moreover, net interest income should rise marginally helped along by the benefits from the Dec 2015 rate hike and continued loan growth.

Analysts seem to be happy with State Street’s business activities in the just concluded quarter. The company witnessed three upward revisions in earnings estimates (versus one downward revision) over the last 30 days. Notably, the Zacks Consensus Estimate of $1.26 remained stable over the last seven days.

Earnings Whispers

Our proven model does not conclusively show that State Street will be able to beat earnings this time. Note that 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) to have a significantly higher chance of beating earnings.

Zacks ESP: The Earnings ESP for State Street is -0.79%. This is because the Most Accurate estimate of $1.25 is below the Zacks Consensus Estimate of $1.26.

Zacks Rank: State Street’s Zacks Rank #3 increases the predictive power of ESP. But we need to have positive ESP to be sure of earnings beat.

Stocks That Warrant a Look

Here are some 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:

Cullen/Frost Bankers, Inc. (NYSE:CFR) has an Earnings ESP of +0.96% and a Zacks Rank #3. It is scheduled to report results on Jul 27.

LPL Financial Holdings Inc. (NASDAQ:LPLA) , which is expected to report on Jul 28, has an Earnings ESP of +2.33% and a Zacks Rank #3.

Federated Investors, Inc. (NYSE:FII) has an Earnings ESP of +2.13% and a Zacks Rank #3. The company is slated to release results on Jul 28.