Will Deutsche Bank's (DB) Stock Rally Post Q4 Earnings?

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Deutsche Bank AGDB is scheduled to report its fourth-quarter 2016 results on Feb 2.

In the last quarter, the German banking giant reported net income, compared to a loss in the prior-year period. Results largely benefited from strength in sales and trading (debt) revenues and the company's consistent cost-control initiatives. However, on the down side, the quarter recorded higher provisions.

Notably, year to date, Deutsche Bank gained 56.6% on the NYSE, significantly outperforming the Zacks classified Foreign Banks industry's growth of 21.6%.

Deutsche Bank finally reached a settlement with the U.S. Department of Justice (DoJ), tied with the issuance and underwriting of residential mortgage-backed securities (RMBS) and allied securitization activities during 2005-2007. The bank has agreed to pay $7.2 billion in principle over toxic securities in the run-up to the 2008 financial meltdown.

Will the upcoming earnings release further rally Deutsche Bank stock? It depends largely on whether the company is able to report improved profitability this earnings season. Let's see what factors might have influenced the earnings report this time around.

Factors to Influence Q4 Results

Profitability of Deutsche bank should continue to suffer amid negative interest rates, sluggish growth of the European economy as well as global headwinds. However, the bank's revenue challenges should ease to some extent as it is expediting the Strategy 2020 efforts to revamp the bank, with focus on simplifying the bank's business model, trimming costs and shedding unprofitable businesses.

During the fourth quarter, trading environment was decent as global financial markets experienced volatility due to several factors. The bank's trading revenues are likely to improve primarily, driven by higher fixed-income trading. Trading in equities is likely to typically remain subdued due to lesser client activities.

Further, revenues from advisory and underwriting are estimated to witness significant improvement, as increase in M&A activities and debt underwriting is foreseen.

Though Deutsche Bank remains focused on expense management, it has been embroiled in several lawsuits and investigations. As a result, some additional reserves for litigation expenses might have been sidelined, which could hurt the bottom line to some extent. Also, the quarterly results are anticipated to display the impact of several ongoing restructuring measures. Restructuring and severance charges, as such, should remain high.

However, Deutsche Bank's ability to cope with broader industry challenges amid its overhauling moves remains a key area to watch this earning season.

Deutsche Bank AG Price

Deutsche Bank AG Price | Deutsche Bank AG Quote

Currently, Deutsche Bank currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Among other foreign banks, Mitsubishi UFJ Financial Group, Inc. MTU , Itau Unibanco Holding S.A. ITUB and The Royal Bank of Scotland Group plc RBS are scheduled to report results on Feb 3, Feb 7 and Feb 24, respectively.

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Deutsche Bank AG (DB): Free Stock Analysis Report

Royal Bank Scotland PLC (The) (RBS): Free Stock Analysis Report

Mitsubishi UFJ Financial Group Inc (MTU): Free Stock Analysis Report

Itau Unibanco Banco Holding SA (ITUB): 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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