Will Barclays (BCS) Stock Continue To Fall Post Q3 Earnings?

The UK-based major global bank, Barclays (LON:BARC) PLC (NYSE:BCS) , is set to announce its third-quarter 2016 results on Oct 27, before the opening bell.

Last quarter, Barclays reported a decline in earnings, reflecting a challenging industry backdrop and sale of several non-core operations. Nonetheless, stable net interest income and a fall in expenses were the tailwinds.

Following the disappointing second-quarter performance and continued macroeconomic concerns, Barclays’ stock has been witnessing a free fall. Year to date, the stock has plunged more than 30% on the NYSE.

Factors to Influence Q3 Results

Will Barclays witness a turnaround this earnings season? Or will it succumb to revenue pressure amid a tough industry backdrop? Let's see how things have turned up for this announcement.

Decline in Revenues to Persist: Barclays should continue to witness a slump in investment banking revenues in the quarter, given the significant slowdown in M&As and lower number of IPOs. Also, a persistent low interest rate environment has forced the central banks of most countries to prioritize growth over inflation control. Therefore, subdued interest income growth is anticipated to hamper Barclays’ top-line growth as well.

Further, as the bank has been divesting operations, this should hurt the top line (similar to the prior quarter) to some extent. Nevertheless, trading revenue is likely to show a marginal improvement, driven by improved performance in bond trading.

Loan Impairment Charges to Remain High: Loan impairment charges should continue to trend upward in the quarter as consistent global slowdown has led to deterioration in asset quality. Also, exposure in the energy sector loans will likely lead to additional loan impairment charges.

Declining Expenses to Play Savior: Barclays has been on a streamlining spree since the beginning of the third quarter. The company has announced divestures of several non-core businesses across the globe. These initiatives should significantly improve the bank’s operating efficiency and trim costs. Also, following the closure of sale of many operations, Barclays is expected to record one-time gain on sales during the quarter.

Notably, legal and other regulatory expenses are bound to adversely affect Barclays’ bottom line. Nonetheless, operating expenses (excluding costs related to restructuring and legal expenses) are estimated to trend lower.

Earnings Whispers

Our proven model does not conclusively indicate that Barclays will outpace the earnings estimate in the third quarter. Note that a stock needs to have both a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher to have a significantly higher chance of beating earnings.

Zacks ESP: The Earnings ESP for Barclays is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are at break-even point.

Zacks Rank: Barclays currently holds Zacks Rank #2 (Buy). This increases the chance of an earnings beat, but we need to have a positive Earnings ESP to be sure of the same.

Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Stocks That Warrant a Look

Here are a few 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:

State Street Corporation (NYSE:STT) is scheduled to report results on Oct 26. The company has an Earnings ESP of +0.80% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

Lazard Ltd. (NYSE:LAZ) , another Zacks Rank #2 stock, has an Earnings ESP of +3.90%. It is scheduled to report results on Oct 27.

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