Will Brexit Concerns Hurt Barclays' (BCS) Q2 Earnings?

The U.K.-based major global bank Barclays (LON:BARC) PLC (NYSE:BCS) is set to announce second-quarter 2016 results on Jul 29, before the opening bell.

Last quarter, Barclays reported a decline in pre-tax earnings, depicting a challenging industry backdrop. This had adverse impact on the company’s investment banking income and trading revenue, partially offset by a stable net interest income and a fall in expenses.

Following the dismal first-quarter performance and continued macroeconomic concerns, Barclays’ stock has been witnessing a free fall. Year-to-date, the stock has plunged nearly 39% on NYSE.

Factors to impact Q2 Results

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

Brexit Concerns to Hurt Profits: The biggest factor which will adversely impact Barclays’ second -quarter results is ‘Brexit’. The company’s profitability remains significantly vulnerable to the escalated economic and political uncertainty subsequent to the Brexit vote. The referendum added to the existing challenging operating environment and should considerably hurt the company’s financials.

Fall 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 weakness in IPO markets. 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.

Loan Impairment Charges to Remain Higher: Further, loan impairment charges should continue to trend upward in the quarter as continued global slowdown led to deterioration in asset quality. Also, exposure in the stressed energy sector will lead to additional loan impairment charges.

Declining Expenses to be the Savior: Barclays has been on a streamlining spree since the beginning of the second quarter. The company announced divestures of a number of its non-core businesses across the globe. These initiatives should significantly improve the bank’s operating efficiency and trim costs.

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

Earnings Whispers

Our proven model indicates that chances of Barclays beating the earnings estimate in the second quarter are very low. 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 stand at 19 cents.

Zacks Rank: Barclays currently holds Zacks Rank #5 (Strong Sell). As it is we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into an earnings announcement.

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:

LPL Financial Holdings Inc. (NASDAQ:LPLA) , which is slated 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.

Golub Capital BDC Inc. (NASDAQ:GBDC) has an Earnings ESP of +3.23% and a Zacks Rank #3. The company is slated to release results on Aug 3.