Why An Earnings Beat Is Likely For Zions (ZION) Stock In Q4?

Zions Bancorporation (NASDAQ:ZION) is slated to announce fourth-quarter and full-year 2017 results on Jan 22, after market close. Its revenues and earnings for the quarter are projected to grow year over year.

Last quarter, Zions’ earnings were in line with the Zacks Consensus Estimate. Higher net interest income and lower provisions aided results. Also, loan growth remained strong. However, higher adjusted non-interest expenses and lower non-interest income were the undermining factors.

Notably, the company boasts an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in three and matched in one of the trailing four quarters, with an average beat of 11.5%.

However, Zions’ activities in the fourth quarter failed to encourage analysts to revise earnings estimates. As a result, the Zacks Consensus Estimate for earnings of 73 cents for the to-be-reported quarter remained stable over the last seven days. Nevertheless, it reflects year-over-year improvement of 21.7%.

The company’s strong fundamentals have helped its shares to gain 18.1% in 2017, outperforming the industry’s growth of 7%.

Will the rally in stock price continue post Q4 earnings release? To a great extent, it depends on the company’s ability to maintain its trend of beating earnings estimates. Let’s take a look at what our quantitative model predicts.

A Likely Positive Surprise?

According to our quantitative model, chances of Zions beating the Zacks Consensus Estimate in the fourth quarter are high. This is because it has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — which is needed for increasing the odds of an earnings beat.

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 Zions is +0.36%.

Zacks Rank: Zions carries a Zacks Rank #2 (Buy), which increases the predictive power of ESP.

Factors to Influence Q4 Results

Given the rise in interest rates, along with modest improvement in lending witnessed in the fourth quarter, Zions’ net interest income is likely to improve. While a slight rise in funding costs is expected to hurt NII to some extent, management projects the same to rise moderately in 2017, driven by continued growth in loans and securities.

Further, driven by treasury management, mortgage and wealth management, the company projects non-interest income (excluding dividends and securities gains/losses) to increase in mid-single digit rate.

Thus, improvement in both NII as well as non-interest income should lead to higher revenues in the quarter. The Zacks Consensus Estimate for revenues for the fourth quarter is $670.6 million, which reflects improvement of 10.2% year over year.

However, despite taking a number of initiatives to control costs, the company’s adjusted non-interest expenses are expected to increase 2-3% year over year in 2017 due to its continued spending on technology systems overhaul and normal salary adjustments.

Other Stocks That Warrant a Look

Here are a few 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.

Synovus Financial Corp. (NYSE:SNV) is slated to release fourth-quarter results on Jan 23. It has an Earnings ESP of +0.23% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Associated Banc-Corp (NYSE:ASB) is slated to report results on Jan 25. It has an Earnings ESP of +0.64% and a Zacks Rank #2.

T. Rowe Price Group, Inc. (NASDAQ:TROW) has an Earnings ESP of +1.49% and a Zacks Rank of 2. It is scheduled to report results on Jan 30.

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