What's in the Cards for State Street (STT) in Q4 Earnings?

State Street CorporationSTT is scheduled to report its fourth-quarter and full-year 2016 results before the market opens on Jan 25.

Last quarter, a rise in fee income drove State Street's operating earnings, which handily outpaced the Zacks Consensus Estimate. However, lower trading services revenue and higher expenses hurt results.

The earnings beat was followed by a nearly 11.6% rally of State Street shares during the three months ended Dec 31, 2016. Additionally, the company boasts a decent earnings surprise history in the trailing four quarters.

Earnings Whispers

Our proven model indicates that it is less likely that State Street will be able to beat the Zacks Consensus Estimate this time around. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least #2 (Buy) or #3 (Hold) to have a significant chance of beating estimates. This is not the case here, as elaborated below:

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 State Street is -0.75%. This is because the Most Accurate estimate of $1.33 is below the Zacks Consensus Estimate of $1.34.

Zacks Rank : State Street's Zacks Rank #2 increases the predictive power of ESP. However, we also need a positive Earnings ESP to be confident of an earnings beat.

Analysts seem to have a neutral stance on State Street's business activities in the just concluded quarter. The company's Zacks Consensus Estimate remained stable over the last seven days.

Factors to Impact Q4 Results

Revenues to Witness Modest Improvement : Though management believes that operating-basis net interest revenue in the fourth quarter will be marginally lower from the previous quarter, the same is likely to modestly exceed the projected range of $2.03-2.13 billion, assuming no change in the current interest rate environment.

Moreover, State Street expects to witness modest year-over-year growth in fee revenue (on an operating basis) in 2016.

Margin Under Pressure : Net interest margin is expected to remain under pressure during the quarter, due to reduction in the Bank of England rate and the continued grind in the portfolio.

However, we believe that a steeper yield curve along with an improvement in treasury yields witnessed during the quarter might ease some of the margin pressure.

Expenses to Rise Modestly : Management is of the opinion that because of the continued regulatory pressure and investments in strategic initiatives including State Street Beacon, the company's fourth-quarter operating-basis expenses will be slightly higher sequentially.

Regulatory and compliance costs, other operating expenses, outside consulting expenses and expenses related to the installation of new business are also expected to rise during the quarter.

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:

Fifth Third Bancorp FITB is slated to release its results on Jan 24. The company has an Earnings ESP of +4.65% and sports a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

SEI Investments Co. SEIC is scheduled to report its results on Jan 25. It has an Earnings ESP of +6.00% and carries a Zacks Rank #2.

Raymond James Financial, Inc. RJF has an Earnings ESP of +1.00% and a Zacks Rank #2. It is expected to report results on Jan 25.

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State Street Corp. (STT): Free Stock Analysis Report

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SEI Investments Co. (SEIC): 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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