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Why Santander Consumer (SC) is Set to Beat in Q3 Earnings

Santander Consumer USA Holdings Inc. SC is scheduled to report third-quarter 2017 results on Oct 27, before market open. Its earnings and revenues are projected to decline year over year.

Last quarter, though the company’s earnings surpassed the Zacks Consensus Estimate, results were hurt by a rise in total operating expenses and lower revenues.

Santander Consumer USA has a decent earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters.

Moreover, activities of the company in the third quarter encouraged analysts to revise estimates upward. As a result, the Zacks Consensus Estimate for earnings of 36 cents per share has increased 2.9% over the last 30 days. However, the figure reflects a decline of 39.6% year over year.

Notably, Santander Consumer USA’s price performance has been quite impressive. Its shares have gained 13.3% so far this year, outperforming the growth of 3.6% for the industry it belongs to.

Will the rally in stock price continue post Q3 earnings? It depends on the company’s ability to impress the market with an earnings beat and improved financials.

Let’s take a look at what our quantitative model predicts.

A Likely Positive Surprise?

According to our quantitative model, chances of Santander Consumer USA beating the Zacks Consensus Estimate this time around 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 — 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 Santander Consumer USA is +6.54%.

Zacks Rank: Santander Consumer USA currently carries a Zacks Rank #1 (Strong Buy), which further increases the predictive power of ESP.

Factors to Influence Q3 Results

Management expects net interest income for the quarter to be down 2-4% sequentially, owing to lower portfolio yield and higher interest expense. Also, other income is expected to remain flat compared with the last quarter.
Thus, total revenues are likely to decline in the quarter.

In fact, the Zacks Consensus Estimate for sales is $1.60 billion for the quarter, which is projected to witness a decline of 2.5% year over year and 4.2% sequentially.

Management expects operating expenses to increase $5-$10 million on a sequential basis.

Due to seasonality, the company expects net charge-offs to be up $220-$240 million sequentially. Thus, overall provisions are expected to be up $110-$150 million on a sequential basis. Also, the Zacks Consensus Estimate for net charge-offs of $742 million for the quarter reflects an increase of nearly 44% sequentially.

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.

T. Rowe Price Group, Inc. TROW is scheduled to report results on Oct 26. It has an Earnings ESP of +1.50% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lazard Ltd. LAZ is also slated to report results on Oct 26. It has an earnings ESP of +1.39% and a Zacks Rank #2 (Buy).

SVB Financial Group SIVB is also scheduled to report results on Oct 26. It has an Earnings ESP of +2.69% and a Zacks Rank #3.

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SVB Financial Group (SIVB): Free Stock Analysis Report
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Lazard Ltd. (LAZ): Free Stock Analysis Report
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