Will High Costs Impact People's United (PBCT) Q3 Earnings?

People's United Financial, Inc. (NASDAQ:PBCT) is scheduled to report third-quarter 2017 results on Oct 19. While revenues and earnings are anticipated to grow year over year, we can’t conclusively predict a likely earnings beat.

Before we discuss why an earnings beat might not be in store and what 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 4.4% in second-quarter 2017. Further, elevated loans and deposits balances were tailwinds. However, escalating expenses and decline in profitability ratios were the undermining factors.

Notably, People's United delivered positive earnings surprises in two of the four trailing quarters, with an average beat of 3.26%.

Regarding the stock’s performance, shares of the company gained around 2.7% for the three-month period ended Sep 30, 2017, underperforming growth of 4.7% recorded by the industry.

Will the upcoming earnings release give a boost to People's United’s stock? This depends largely on whether the firm is able to post a beat in the third quarter. However, our quantitative model doesn’t conclusively point toward a likely earnings beat this time. Here’s why:

People's United doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or 2 (Buy) or at least 3 (Hold) — for increasing its chances of an earnings beat. It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Zacks ESP: The Earnings ESP for People's United is -0.28%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: People's United’s Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings beat.

Factors to Influence Q3 Results

Loan Growth: Per the Federal Reserve’s latest data, loans grew on a sequential basis during the third quarter. Particularly, growth in commercial and consumer loans, with slowdown in commercial real estate loans is expected. Therefore, interest income for banks is projected to improve marginally.

In addition, management’s expectations of loan and deposit growth in 2017 will likely be reflected in this quarter. Management projects loan portfolio to grow in the range of 11-13%.

Modest Rise in Net Interest Income (NII): Given the influence of rise in interest rates, People's United should have recorded an increase in NII. Notably, management’s projections of 2017 NII to grow in the range of 12-14% is likely to show impact in the third quarter as well.

Fee Income to Escalate: On strong retail banking, fee income might escalate for the bank. In addition, the company projects non-interest income to rise in the range of 5-7% in 2017, the impact of which is likely to be reflected in the to-be-reported 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 limit 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.

State Street Corporation (NYSE:STT) has an Earnings ESP of +0.27% and carries a Zacks Rank of 2. It is scheduled to report results on Oct 23. You can see the complete list of today’s Zacks #1 Rank stocks here.

M&T Bank Corporation (NYSE:MTB) is slated to release third-quarter earnings on Oct 18. The company, which carries a Zacks Rank of 3, has an Earnings ESP of +0.33%.

The Earnings ESP for T. Rowe Price Group, Inc. (NASDAQ:TROW) is +3.25% and the stock carries a Zacks Rank of 2. The company is scheduled to report quarterly numbers on Oct 26.

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