Will State Street (STT) Disappoint This Earnings Season? - Analyst Blog

State Street Corporation STT is set to report first-quarter 2014 results on Apr 24 before the opening bell. The company posted a 3.4% negative earnings surprise in the last quarter. Let's see how things are shaping up for this announcement.

Factors to Influence Q1 Results

The overall market scenario remained sluggish and the interest rate environment did not reverse in the quarter. Therefore, we believe that State Street will report subdued net interest income growth.

However, that is not expected to significantly dampen its top line growth, as 77% of the company's revenue flow depends on fee income (as of 2013). Now it depends on how the company has been able to evade the sector challenges and performed on the noninterest income front.

The company has been witnessing a rise in expenses despite various cost saving initiatives in the last few quarters. We don't expect the trend to reverse this quarter as well.

Moreover, the overall equity market could not maintain the pace of growth in the quarter. We expect this to act favorably for the company's exchange-traded fund ETF business with the tendency of investors to shift toward less-risky instruments. Asset inflows in this business are expected to show significant improvement this quarter.

Nevertheless, the company failed to impress analysts with its level of activities during the quarter. As a result, the Zacks Consensus Estimate for the quarter remained unchanged at $1.0 per share over the last 7 days.

Earnings Whispers?

Our proven model does not conclusively show that State Street is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP:  Earnings ESP for State Street is 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate stand at $1.00.

Zacks Rank: State Street's Zacks Rank #3 increases the predictive power of ESP. But we also need to have a positive ESP to be confident of an earnings surprise call.

Stocks That Warrant a Look

Here are some other companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:  

Tompkins Financial Corp. TMP has an Earnings ESP of 1.21% and carries a Zacks Rank #2 (Buy). It is scheduled to report first-quarter results on Apr 25.

BNC Bancorp BNCN has an Earnings ESP of 8.33% and holds a Zacks Rank #1 (Strong Buy). The company is expected to release first-quarter results on May 5.

Another regional bank The PNC Financial Services Group, Inc. PNC posted earnings beat this quarter. Our proven model predicted that PNC Financial would deliver a positive earnings surprise as it had the right combination of two key ingredients.