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Barclays (BCS) Q1 Earnings: What's in Store for the Stock?

UK-based major global bank Barclays PLC BCS is set to announce first-quarter 2016 results on Apr 27, before the opening bell.

Last quarter, Barclays reported a loss on the back of weak top-line performance and higher provisions. However, fall in operating expenses continued to act as a tailwind.

So, will Barclays be able to return to profitability this earnings season? Or will it succumb to revenue pressure amid a challenging industry backdrop? Let us see how things have turned up for this announcement.

Factors to Influence Q1 Results

Barclays began the first quarter with an aim to further streamline its operations. The company announced several initiatives at its Investment Bank division (with primary focus on its two home markets in the U.S. and the U.K.). Also, the company will be closing its offices in nine  countries across Asia, the Americas and the EMEA.

All these initiatives should significantly improve Barclays’ operating efficiency and enhance profitability.

However, similar to other global banks, Barclays too faced a challenging operating environment during the first quarter. Huge equity markets sell-offs, global growth concerns and volatility in oil prices significantly hurt the company’s financials. Notably, the company expects investment banking revenues to be strained in the quarter.

Further, continued low interest rate environment during the quarter forced the central banks of most countries to prioritize growth over inflation control. Hence, subdued interest income growth is anticipated to hamper Barclays’ top-line growth as well.

Moreover, loan impairment charges are expected to trend upward in the quarter as continued global slowdown led to deterioration in asset quality. Also, exposure in the stressed energy sector should lead to further rise in the loan impairment charges.

Apart from this, Barclays’ legal woes are far from over. The company is most likely to increase its legal provisions during the quarter. The company will also record an additional provision to cover the payout for payment protection insurance (“PPI”) redress, similar to the prior quarters.

Despite undertaking initiatives to trim expenses, legal and other costs are bound to adversely impact Barclays’ bottom line. Nonetheless, operating expenses (excluding costs related to restructuring and legal expenses) are expected to remain stable.

Currently, Barclays carries a Zacks rank #5 (Strong Sell).

Stocks That Warrant a Look

Better-ranked finance stocks include HDFC Bank Limited HDB, Affiliated Managers Group Inc. AMG and BlackRock, Inc. BLK. All three stocks hold a Zacks Rank #2.

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BARCLAY PLC-ADR (BCS): Free Stock Analysis Report
HDFC BANK LTD (HDB): Free Stock Analysis Report
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AFFIL MANAGERS (AMG): Free Stock Analysis Report
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