Minutes from the Federal Reserve's April meeting suggest that officials are open to the possibility of raising interest rates as early as June. After the minutes were released, stocks as a whole went lower. However, one sector saw shares shoot up.
While most industries will have to pay more to finance operations with debt, the banking industry stands to gain a lot from a rising interest rate environment. Banks are the primary lenders for corporations, so when the federal funds rate increases, so do the rates at which banks lend at. At higher interest rates, banks stand to earn higher profit margins.
If you believe that jobs growth, consumer spending and inflation will rise, then you may also believe that the Fed will raise interest rates sooner than later. If this is the case, then you will want to buy banking stocks which have the best chance to beat earnings expectations when they report their quarterly earnings.
Below are three such banking stocks that are well-positioned with regards to posting a beat on our EPS consensus. They each have a Zacks Rank #1 (Strong Buy), so they look like solid investment candidates to pick up over the short term.
First BanCorp- FBP
First Bancorp has branches and lending offices, in addition to an extensive ATM network all over the world. FBP is a Zacks Rank #1 (Strong Buy), and it has a market cap of just $920.28 million.
For the current year, three analysts have revised their earnings estimates for FBP over the last 60 days. Each of those estimates has been revised upwards. These have helped to boost our fiscal year EPS consensus, and over the last 30 days, this consensus has gone from $0.34 to $0.42. If the Fed raises rates this year, it is likely that analysts will continue to revise their expectations higher for FBP. Last quarter, FBP beat our EPS consensus estimate by 37.50%.
Cardinal Financial Corporation- CFNL
Cardinal Financial Corporation pursues a community banking strategy by offering a broad range of banking products to individuals, professionals, and small to medium-sized businesses. Cardinal is a Zacks Rank #1 (Strong Buy), and its stock currently yields a 2.13% dividend.
No analysts have posted negative earnings estimate revisions over the last 60 days for the current year. Over that time span though, two analysts have revised their 2016 EPS expectations higher for Cardinal Financial. Our current year consensus estimate has seen significant improvement over the last two months, and CFNL has met or beaten our EPS consensus in three of the last four quarters.
Banc of California Inc- BANC
Banc of California, Inc. provides comprehensive banking services to California's diverse private businesses, entrepreneurs and homeowners. The bank holds a Zacks Rank #1 (Strong Buy), and it doles out a 2.45% dividend yield.
Four analysts have revised their EPS estimates upwards over the last 60 days for the current year. No analysts have lowered their fiscal 2016 EPS expectations within the last two months. Our consensus estimate has trended upwards over the last 60 days, going from $1.59 to $1.65. BANC has beaten our EPS consensus estimate over each of the last four quarters.
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