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Royal Bank of Scotland (RBS) Q3 Earnings: What's in Store?

The Royal Bank of Scotland Group plc RBS is scheduled to report third-quarter 2017 results on Oct 27, before market open. Its earnings are projected to grow year over year, while revenues are expected to witness a decline.

Last quarter, the company reported improved earnings. Results were driven by higher revenues along with lower expenses.

However, activities of the company in the third quarter failed to win analysts’ confidence. As a result, the Zacks Consensus Estimate for earnings of 15 cents remained stable over the last 30 days. Nevertheless, the figure reflects year-over-year improvement of 50%.

The Zacks Consensus Estimate for sales is $4.19 billion for the to-be-reported quarter, which is expected to witness a decline of 3.6%.

Driven by the gradual improvement in the macroeconomic backdrop, shares of the company have gained 58.4% on the NYSE in a year’s time, outperforming the 25.1% growth of the industry it belongs to.

RBS, which was bailed out with £45 billion by the British government in 2008, has been striving for growth with several restructuring initiatives. These include cost-reduction measures, reducing geographic footprint and capital build-up efforts, while remaining focused on its strategy to become a smaller and simpler bank.

The bank’s ability to cope with the broader industry challenges amid its overhauling moves remains a key area to watch out for this earnings season. So, will the upcoming earnings release lead to further improvement in RBS’ share price?

Before getting into a detailed discussion on the factors that are likely to affect Q3 results, let’s check what our quantitative model predicts.

According to our quantitative model, it cannot be conclusively predicted if RBS will be able to beat the Zacks Consensus Estimate this time around. 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 — 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 RBS is 0.00%. This is because the Most Accurate estimate of 15 cents matches the Zacks Consensus Estimate.

Zacks Rank: RBS 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.

Factors to Influence Q3 Results

The Edinburgh-based banking giant has been experiencing a decline in net fees and commissions for the past few quarters and we do not expect this quarter to display substantial strength. Moreover, the company has downsized its investment banking division, which is likely to witness a decline.

As the bank remains focused on expediting its ongoing overhaul, the quarterly results are likely to be marred by further significant restructuring charges. Also, given RBS’ exposure to numerous lawsuits and investigations, the company might have kept additional reserves for litigation expenses, which could dampen the bottom line to some extent.

However, expense base might get some respite owing to RBS’ continued cost-control efforts. Additionally, the company might have benefited from the ongoing economic recovery (albeit at a slow pace) in the UK and Ireland — the major domestic markets.

Notably, the bank plans to move majority of jobs to India in order to bring down compensation costs. This restructuring move is aimed at boosting the bank’s profitability.

Stocks to Consider

Here are a few 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 (Strong Buy). 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.

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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Royal Bank Scotland PLC (The) (RBS): Free Stock Analysis Report
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Lazard Ltd. (LAZ): Free Stock Analysis Report
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