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3 Major Bank Stocks Set to Beat Earnings Estimates in Q2

The Q2 earnings season will be commencing soon and investors are keen to see if banks (one of the industries that have been under the spotlight for quite some time now) can replicate or beat their impressive first-quarter results.

While the year begun on an optimistic note with President Donald Trump’s policy goals and improving rate scenario, the shine gradually faded as we entered the second quarter. The overall macro environment became challenging and the policy changes promised by the Trump administration have hit several roadblocks.  

Major banks (accounting for nearly 45% of the Finance sector’s total earnings) are expected to witness 4.5% year-over-year decline in earnings in the quarter. This compares unfavorably with the 19.4% growth witnessed in the prior quarter.

(For detailed look at the earnings outlook for this industry and others, please read our Earnings Preview.)

Trading revenues are anticipated to decrease year over year, mainly due to low volatility in both the bond and equity markets. Last year quarter’s trading results were quite unusual across the industry, with Brexit being the main driver at that time.

Apart from this, global M&A activity remained lackluster. Per the Thomson Reuters data, the total deal value of announced M&As across the world fell during the quarter. Debt underwriting was soft as well. Also, overall investment banking income is likely to witness a decline, with the only saving grace being improvement in equity underwriting.

While the Fed’s recent rate hikes should ease some pressure on net interest margin, lower treasury yields during the quarter are likely to curb margin improvement. On the other hand, per the Federal Reserve’s latest data, loans grew on a sequential basis during the quarter. Both commercial real estate loans and commercial and industrial loans (C&I) are expected to increase, while consumer loans might fall. Therefore, interest income for banks is projected to improve marginally.

On the cost front, there is less chance of a significant rise in the expenses. At the same time, the expense-saving initiatives keep on supporting the bottom-line performance. So, overall expenses are expected to remain stable in the quarter.

Selecting the Winners

While the upcoming results are not likely to be impressive, there are still a few major banks that are expected to reflect resilience. Therefore, this is the right time for you to select some banking stocks that are well poised to beat earnings in their upcoming releases.

Choosing the most rewarding stocks within the industry might be a difficult task unless one knows the process to shortlist. One way to do it is by picking stocks that have the combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) – and a positive Earnings ESP.

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising in their upcoming earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

3 Major Banks Set for Earnings Surprises

Here are three major regional bank stocks that have the right combination of elements to deliver positive earnings surprises in their upcoming announcements:

Comerica Incorporated (CMA) is slated to release results on Jul 18. The company has an Earnings ESP of +2.80% and it carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for M&T Bank Corporation (MTB) is +1.32% and it carries a Zacks Rank #3. The company is scheduled to release results on Jul 19.

Fifth Third Bancorp (FITB) has an Earnings ESP of +2.38% and carries a Zacks Rank #3. It is scheduled to report results on Jul 21.

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