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Will Provisions Hurt People's United (PBCT) Q3 Earnings?

People's United Financial Inc.PBCT is scheduled to report third-quarter 2015 results before the market opens on Thursday, Oct 15.

Last quarter, this Bridgeport, CT-based company's earnings came in line with the Zacks Consensus Estimate. Notably, profits dipped 14.7% year over year triggered by a 4.5% plunge in revenues and close to 2% rise in expenses.

Overall, the company has either met or surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with an average positive earnings surprise of 2.44%.

Will People's United succumb to industry challenges in this quarter? Let's see how things have shaped for this announcement.

Factors to Influence Q3 Results

An improving economic backdrop is expected to facilitate increased lending activity at People's United during the third quarter. According to the Federal Reserve data, commercial real estate loans and credit card loans for the industry were up 2.4% and 1.6%, respectively, on a sequential basis.

While this is expected to drive loan growth and lead to higher net interest income in the quarter, a persistent low rate environment will likely result in margin compression. Nonetheless, we remain confident of the company's solid loan growth history, and expect the same to offset margin pressure this time.

Moreover, management expects non-interest income to exhibit moderate growth driven by higher swap and commercial fees as well as seasonally higher insurance revenues. As such, we expect to witness top-line growth for People's United in the third quarter.

However, based on management's guidance of increased expenses for full-year 2015, we anticipate costs to trend higher in this quarter. Moreover, costs associated with branch optimization and technology improvement are expected to limit bottom-line expansion.

Additionally, any substantial growth in loans calls for a simultaneous increase in provisions. As such, provisions are anticipated to remain high this time around, similar to the prior quarter.

People's United's activities during the quarter were inadequate to win analysts' confidence. As a result, the Zacks Consensus Estimate has remained unchanged at 22 cents per share over the past 7 days.

Earnings Whispers

Our proven model does not conclusively show that People's United is likely to beat the Zacks Consensus Estimate in the third quarter. 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) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Earnings ESP for People's United is -4.55%. This is because the Most Accurate estimate of 21 cents per share stands below the Zacks Consensus Estimate of 22 cents.

Zacks Rank: People's United's Zacks Rank #4 (Sell) further lessens the chance of an earnings surprise.

Stocks to Consider

Here are a few 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 PNC Financial Services Group, Inc. PNC has an Earnings ESP of +1.12% and carries a Zacks Rank #3. The company is scheduled to report on Oct 14.

Wintrust Financial Corporation WTFC is also slated to release results on Oct 14. The company has an Earnings ESP of +2.35% and carries a Zacks Rank #3.

SunTrust Banks, Inc. STI has an Earnings ESP of +1.21% and carries a Zacks Rank #3. It is scheduled to report on Oct 16.

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PNC FINL SVC CP (PNC): Free Stock Analysis Report

SUNTRUST BKS (STI): Free Stock Analysis Report

PEOPLES UTD FIN (PBCT): Free Stock Analysis Report

WINTRUST FINL (WTFC): 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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