Will Trading, Loan Growth Aid Barclays' (BCS) Q1 Earnings?

Barclays (LON:BARC) (NYSE:BCS) is slated to announce first-quarter 2018 results on Apr 26, before the opening bell. For the to-be-reported quarter, it is expected to record year-over-year growth in revenues, while earnings are projected to decline.

Lower net interest income, fall in trading revenues and muted underwriting fees significantly hurt Barclays’ results in the last reported quarter. These were partly offset by lower expenses and a decline in credit impairment charges.

Will Barclays be able to witness improved earnings this time? Well, that doesn’t seem likely.

During the first quarter, Barclays resolved a lawsuit with the U.S. Department of Justice related to the sale of residential mortgage backed securities and agreed to pay £1.42 billion ($2 billion) in penalties. This will have an adverse impact on the bank’s earnings.

Thus, the Zacks Consensus Estimate for earnings of 33 cents show an 8.3% fall on a year-over-year basis. However, the consensus estimate for sales is $7.96 billion for the to-be-reported quarter, reflecting a rise of 10.4% from the prior-year quarter.

Factors at Play

Trading reversal to support revenue growth: After three consecutive quarters of witnessing muted activities, volatility is back in the market. In the last two months of the first quarter, the markets experienced considerable volatility. The trade war between the United States and China, higher inflation expectation, tightening of monetary policy by the Fed and a sharp sell-off in the tech sector incited volatility. Thus, Barclays is projected to record a rise in trading revenues in the to-be-reported quarter.

Investment banking to marginally support revenues: The trend of pocketing solid underwriting fees for debt issuance may reverse to some extent in the to-be-reported quarter, as rising rates are likely to have slowed down corporates’ involvement in these activities. Thus, Barclays’ debt underwriting fees are expected to decline.

However, strong equity issuances globally are expected to have boosted IPOs and follow-on offerings. So, the related fees are projected to increase for Barclays. Also, a potential rise in fees from increasing M&As in certain sectors will likely lead to a slight rise in advisory revenues for the company.

Rise in loan demand to support interest income: While a low interest rate environment across several major economies continue hampering interest income growth, increase in loan demand is likely to offset it to some extent.

Cost saving efforts to offer some support: Barclays has been on a streamlining spree since the second half of 2016. It announced divestures of several non-core businesses. These initiatives are expected to improve the bank’s operating efficiency and trim costs. Nevertheless, legal and other regulatory expenses are bound to adversely affect its bottom line.

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.

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

Zacks Rank: Barclays has a Zacks Rank #2 (Buy), which increases the predictive power of ESP. However, 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

Deutsche Bank (NYSE:DB) and Royal Bank of Scotland (LON:RBS) Group (NYSE:RBS) are scheduled to announce results on Apr 26, while HSBC Holdings (NYSE:HSBC) will report on May 4.

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