Fifth Third (FITB) Q4 Earnings: Is a Beat in the Cards?

We expect Fifth Third BancorpFITB to beat earnings expectations when it reports fourth-quarter 2016 results, before the opening bell on Jan 24.

Why a Likely Positive Surprise?

Our proven model shows that Fifth Third is likely to beat on earnings in the fourth quarter. This is because the company has the combination of two key ingredients for a possible earnings beat - a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold).

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

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is pegged at +4.65%. This is a very significant and leading indicator of a likely positive earnings surprise for the company.

Zacks Rank: The combination of Fifth Third's Zacks Rank #1 and a positive ESP makes us confident of an earnings beat.

The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

Shares of Fifth Third gained 75.2% over the past one year, outperforming the Zacks categorized Banks - Major Regional industry's gain of 41.7%.

Further, the company boasts an impressive earnings surprise history.

Factors to Influence Q4 Results

Expenses to Trend Higher: Expenses might trend upward in the upcoming release due to an increase in FDIC surcharge, which went effective in third-quarter 2016. Given its ongoing strategic investments in several areas including technology, expenses might escalate in the near term. However, management anticipates the completed consolidation of108 branches to result in nearly $60 million of annualized cost savings.

Muted Loan Growth: According to a recent data from the Federal Reserve, overall loan growth is estimated in the 0.5-0.7% range for the fourth quarter, impacted by election and monetary policy uncertainties. While overall loan growth is anticipated to be slow for the quarter, consumer lending is likely to be comparatively stronger, driven by credit card and automobile loan growth. As expanding loans was one of the major ways to offset margin pressure for major banks including Fifth Third in the last few quarters, fourth-quarter results might reflect considerable revenue pressure.

Pressure on Net Interest Margin (NIM) Might Ease: Though the persistently low rate environment has taken a toll on the bank's margins over the past several quarters, the recent Fed interest rate hike might bring about an improvement in NIM.

Lower Fee Income to Impact Revenues: Fifth Third's non-interest income might get negatively impacted as management anticipates mortgage origination revenue in the fourth-quarter to be seasonally slightly lower sequentially but up 5-10% year over year. Further, corporate banking fees are expected to be stable relative to the prior quarter.

Stable Credit Quality with Reduced Energy Allowances: The upcoming release is likely to record a stable credit performance. Further, given the rebound in oil prices after it hit rock bottom in February last year, the allowances tied with the energy portfolio should not be significant.

Notably, this banking giant could not win analysts' confidence during the quarter. The Zacks Consensus Estimate remained stable at 43 cents, over the last seven days.

Stocks that Warrant a Look

Here are some stocks you may want to consider, as according to our model they have the right combination of elements to post an earnings beat this quarter.

Raymond James Financial, Inc.RJF is scheduled to report fourth-quarter results on Jan 25. It has an Earnings ESP of +1.00% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.

The Earnings ESP for T. Rowe Price Group, Inc.TROW is +2.16% and it carries a Zacks Rank #3. The company is scheduled to release fourth-quarter results on Jan 26.

UMB Financial CorporationUMBF has an Earnings ESP of +1.18% and a Zacks Rank #1. It is slated to report fourth-quarter results on Jan 25.

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Fifth Third Bancorp (FITB): Free Stock Analysis Report

UMB Financial Corp. (UMBF): Free Stock Analysis Report

Raymond James Financial Inc. (RJF): Free Stock Analysis Report

T. Rowe Price Group Inc. (TROW): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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