Can Loan Growth Benefit People's United (PBCT) Q1 Earnings?

People's United Financial, Inc. (NASDAQ:PBCT) is scheduled to report first-quarter 2018 results on Apr 19, before the market opens. Both revenues and earnings are anticipated to improve year over year.

Before we discuss the factors that could influence the results, let’s take a look at how the company performed in the last quarter.

Driven by higher revenues and lower provisions, People's United reported a positive earnings surprise of 11.1% in fourth-quarter 2017. Further, elevated loans and deposits balances were tailwinds. However, escalating expenses was the undermining factor.

Notably, People's United delivered positive earnings surprises in three out of the four trailing quarters, with an average beat of 4.87%.

Regarding the stock’s performance, shares of the company declined slightly for the three-month period ended Mar 31, 2018. Will the upcoming earnings release give a boost to People's United stock? This depends largely on whether or not the firm is able to post a beat in the first quarter. Notably, our quantitative model does not conclusively predict likely earnings beat this time. Here’s why:

Our proven model indicates that People's United does not have the right combination of the two key ingredients — positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold).

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 People's United is -0.27%.

Zacks Rank: People's United carries a Zacks Rank #2, which increases the predictive power of ESP. But we also need to have a positive ESP to be confident of a positive earnings surprise.

The Zacks Consensus Estimate for the to-be-reported quarter remained unchanged over the last seven days and is expected to move up 36.4% year over year. Moreover, the Zacks Consensus Estimate for sales is projected at $394 million, up 18.2% year over year.

Factors to Influence Q1 Results

Loan Growth: Per the Fed’s latest data, loans are expected to improve slightly on a sequential basis during the quarter to be reported. Particularly, weakness in revolving home equity loans might offset growth in commercial and industrial (C&I), consumer and overall real estate loans to some extent.

In addition, management’s expectations of loan and deposit growth in 2018 will likely be reflected in this quarter. Management projects loan portfolio to grow in the range of 4-6%, while deposits are projected to be up 3-5%.

Modest Rise in Net Interest Income (NII): Given the influence of rise in interest rates, People's United is anticipated to have recorded an increase in NII. Notably, management’s projections of 2018 NII’s growth in the range of 10-12% is likely to show impact in the quarter to be reported as well. This is based on the expectation of net interest margin (NIM) in the range of 3.05-3.15%, on assumption of a 25-basis-point rate hike during the year.

Fee Income to Escalate: On strong retail banking, fee income might escalate for the bank. Additionally, the company projects non-interest income to rise in the range of 3-5% in 2018, the impact of which is likely to be reflected in the first quarter.

Increase in Expenses: Despite undertaking a number of expense-saving initiatives, People’s United’s operating expenses have witnessed an elevated level. Though the company is focused on optimizing its branch network and has initiated installation of technology to improve efficiencies and reduce costs, escalating expense levels are likely to curb bottom-line expansion.

Stocks That Warrant a Look

Here are some other stocks you may want to consider, as according to our model, these have the right combination of elements to post an earnings beat this quarter.

The Earnings ESP for The Bank of New York Mellon Corporation (NYSE:BK) is +0.21% and the stock carries a Zacks Rank of 3. The company is scheduled to release first-quarter results on Apr 19. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BB&T Corporation (NYSE:BBT) has an Earnings ESP of +1.43% and carries a Zacks Rank of 3. It is slated to release earnings on Apr 19.

Synovus Financial Corp. (NYSE:SNV) has an Earnings ESP of +0.38% and carries a Zacks Rank of 3. It is scheduled to report results on Apr 24.

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