What's In The Cards For Barclays (BCS) This Earnings Season?

Barclays (LON:BARC) (NYSE:BCS) is slated to announce fourth quarter and 2018 results on Feb 21, before the opening bell. For the quarter, it is expected to record year-over-year higher earnings while revenues are likely to fall marginally.

Rise in trading income and decline in credit impairment charges supported the company’s results in the last reported quarter. However, fall in interest income and higher expenses acted as headwinds.

Notably, the Zacks Consensus Estimate for earnings of 17 cents for the fourth quarter shows a 41.7% increase on a year-over-year basis. Nonetheless, the consensus estimate for sales is $6.61 billion, reflecting a fall of 0.9%.

Before we take a look at what our quantitative model predicts, let’s check the factors that are expected to influence fourth-quarter results.

Factors to Impact Q4 Results

Investment banking to marginally support revenues: Seasonal slowdown is expected to hamper underwriting performance in the quarter. Fears of global economic slowdown and increased volatility weighed on companies’ plans to raise capital by issuing shares. Further, rise in interest rates is likely to have lowered companies’ involvement in debt issuance activities. Thus, underwriting fees are not expected to increase much for Barclays.

While decline in global M&A deal volume (due to volatile markets and increase in borrowing costs) in the October-December quarter will likely hamper Barclays’ advisory fees, the strong M&A deal pipeline from the previous quarters will provide modest support.

Modest growth in trading revenues: Similar to the prior three quarters, substantial volatility persisted in the equity markets during the to-be-reported quarter. Several developments — including the further escalation of U.S.-China trade war, Brexit-related uncertainty and fears of global economic slowdown — rocked the markets and kept the trading desks busy. Thus, an increase in equity trading activities is expected.

Nonetheless, soft fixed income trading will likely be an offsetting factor. Therefore, Barclays will likely record a slight rise in trading revenues.

Muted net interest income growth: Low interest rate environment across several major economies continue hampering interest income growth. Further, Brexit-related uncertainty is likely to have an unprecedented adverse effect on its financials. Therefore, Barclays will likely witness muted growth in net interest income in the fourth quarter.

Slight increase in expenses: Barclays’ cost control measures have been leading to improved efficiency and lower cost to income ratio. Nevertheless, several legal and other regulatory expenses are bound to affect its expenses in the fourth quarter.

Management expects operating expenses (excluding litigation and conduct charges) for 2018 to be £13.9 billion.

Now, let’s check what our quantitative model predicts.

According to our quantitative model, it cannot be conclusively predicted if Barclays will be able to beat the Zacks Consensus Estimate this time. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to be confident of an earnings surprise call.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Barclays is 0.00%.

Zacks Rank: Barclays has a Zacks Rank #3. While this increases the predictive power of ESP, we also need a positive ESP to be confident of an earnings beat.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Schedule of Other Foreign Banks

Bank of Montreal (TO:BMO) is scheduled to report results on Feb 26 while both Canadian Imperial Bank of Commerce (TO:CM) and The Toronto-Dominion Bank (TO:TD) will report on Feb 28.

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