What's In The Cards For State Street (STT) In Q1 Earnings?

State Street Corporation (NYSE:STT) is scheduled to report first-quarter 2017 results before the market opens on Apr 26.

Last quarter, a rise in trading revenues drove State Street’s operating earnings, which handily outpaced the Zacks Consensus Estimate. However, higher expenses hurt the results.

Shares of State Street hardly gained in the three months (ended Mar 31) despite the earnings beat. However, the company boasts an impressive earnings surprise history, as is evident from the chart below:

State Street Corporation Price and EPS Surprise

Earnings Whispers

According to our proven model, it is less likely that State Street will be able to beat the Zacks Consensus Estimate this time around. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or at least #3 (Hold) for this to happen. This is not the case here, as is elaborated below:

(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 State Street is -1.82%. This is because the Most Accurate estimate of $1.08 is below the Zacks Consensus Estimate of $1.10.

Zacks Rank: State Street’s Zacks Rank #3 increases the predictive power of ESP. However, we also need a positive Earnings ESP to be confident of an earnings beat.

Moreover, analysts seem to have a bearish stance on State Street’s business activities in the just-concluded quarter. The company’s Zacks Consensus Estimate declined by nearly 1% in the last seven days.

Factors to Influence Q1 Results

Margin Pressure to Ease: We believe the latest interest rate hikes have helped improve State Street’s net interest margin in the quarter.

Revenues to Remain Stable: The strengthening of the U.S dollar will lead to a decline in foreign exchange trading revenues in the quarter. Moreover, servicing fees might fall due to expectations of weaker performance of the asset servicing business. Thus, overall fee revenue is expected to witness a decline.

However, easing margin pressure should have a positive impact on net interest revenue, thereby partially offsetting the fall in fee revenue.

Expenses to Rise: Management is of the opinion that the incremental amount attributed to equity compensation expense for retirement-eligible employees and payroll taxes will be roughly $155 million in the quarter, up nearly 27% year over year.

Moreover, though the company is undertaking cost-saving initiatives through State Street Beacon, benefits of the same are not expected to be realized much in the quarter.

Stocks That Warrant a Look

Here are some 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.

Evercore Partners Inc. (NYSE:EVR) is slated to release its results on Apr 26. The company has an Earnings ESP of +11.00% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Prosperity Bancshares, Inc. (NYSE:PB) is also scheduled to report its results on Apr 26. It has an Earnings ESP of +1.02% and carries a Zacks Rank #3.

SVB Financial Group (NASDAQ:SIVB) has an Earnings ESP of +0.54% and a Zacks Rank #2. It is expected to report results on Apr 27.

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