Will E*TRADE (ETFC) Disappoint this Earnings Season?

E*TRADE Financial Corporation ETFC is scheduled to report its second-quarter 2014 results after the market closes on Wednesday, Jul 23.

E*TRADE started 2014 on a strong note, reflecting its efforts towards achieving growth and profitability.  In the last quarter, the company delivered a positive earnings surprise of 43.48%, driven by strong brokerage activity. Rise in total daily average revenue trades (DARTs) and the completion of the sale of its market making business in the quarter were the positives.

Will E*TRADE be able to keep the earnings streak alive after combating the challenges the industry witnessed during the quarter? Let's see what factors might have influenced the earnings report this time around.

Factors to Influence Q2 Results    

E*TRADE has some encouraging traits that may support its results. The company's initiatives to reduce balance sheet risk are a positive, although it will put near-term pressure on the net interest margin. Moreover, E*TRADE's decision to focus on core operations is commendable.

However, the unfavorable macro issues may weigh on E*TRADE's top line in the quarter. Further, a challenging economy and market volatility might drive down profitability.

Sluggish economic conditions will no doubt partly impact E*TRADE's performance in the quarter. However, the company's monthly activity updates since Apr 2014 affirm an overall increase in total customer assets.

Activities of E*TRADE during the quarter were inadequate to win analysts' confidence. As a result, the Zacks Consensus Estimate for the quarter remained stable at 23 cents per share over the last 7 days.

Earnings Whispers

Our proven model does not conclusively show that E*TRADE is likely to beat the Zacks Consensus Estimate in the second quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP:  The Earnings ESP for E*TRADE is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 23 cents per share.

Zacks Rank: E*TRADE's Zacks Rank #4 (Sell) further lowers the predictive power of ESP.

Stocks That Warrant a Look

Here are some finance stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

The earnings ESP for Regions Financial Corporation RF is +4.76% and it carries a Zacks Rank #3 (Hold). The company is scheduled to release its second-quarter results on Jul 22.

CIT Group Inc. CIT has an earnings ESP of +2.33% and carries a Zacks Rank #3 (Hold). It is scheduled to report its second-quarter results on Jul 22.

Popular, Inc. BPOP has an earnings ESP of +10.29% and carries a Zacks Rank #2 (Buy). It is scheduled to report its second-quarter results on Jul 24.